The number on the term sheet isn't the number you'll spend against

Tenants compare TI allowances the way they compare rent — a single dollar-per-square-foot figure, higher is better. That comparison misses almost everything that determines whether the allowance actually covers your buildout: what it's allowed to be spent on, how disbursements work, and what happens to anything left over.

Two landlords offering the same $12/SF allowance can produce very different outcomes for you, depending entirely on the language surrounding that number.

Where the headline number gets padded

Scope creep into landlord's base building work

Some leases quietly define your TI allowance as covering work that should have been the landlord's responsibility as part of delivering a functional shell — ADA compliance corrections, fire/life-safety upgrades required to bring the existing building up to current code, or repairs to existing systems that were already failing. If the allowance has to absorb the landlord's deferred maintenance before it touches your actual buildout, the number that sounded generous shrinks fast.

Vague "hard cost only" language

Soft costs — architectural and engineering fees, permit fees, project management — are a real and material part of any buildout, often 10–15% of total project cost. If your allowance is defined as hard costs only, you're funding those soft costs entirely out of pocket, on top of whatever the allowance doesn't cover.

Contractor markup and change order terms

Leases that require you to use the landlord's approved general contractor — without a competitive bid requirement — remove your ability to control unit pricing. Change orders during construction, which are common, then get priced by a contractor with no incentive to keep your costs down. Ask for the right to competitively bid the buildout among at least two or three qualified contractors, even if the landlord retains approval rights over who you select.

Disbursement conditions that create a cash-flow gap

Some landlords disburse TI dollars only after full completion and issuance of a certificate of occupancy — meaning you float 100% of the buildout cost during construction and get reimbursed after the fact. For a large buildout, that's a meaningful working-capital commitment most tenants don't budget for. Negotiate progress disbursements tied to construction milestones (25/50/75/100%), not a single lump sum at the end.

What happens to unused allowance

If your actual buildout costs less than the allowance — which happens more often than tenants expect, especially in lightly-improved spec space — find out in advance whether the difference is forfeited, or whether it converts to a rent credit. A rent credit provision is close to free to negotiate for the landlord (they're not writing a check either way) and can be worth real money if your buildout comes in under budget.

The strategic point. Negotiate the TI allowance as a package — dollar amount, permitted use, disbursement schedule, contractor selection, and unused-allowance treatment — not as a single number to compare across term sheets. A smaller allowance with clean, favorable terms on all five points often nets out ahead of a larger number buried in restrictive language.

The questions to ask before you compare two term sheets

  1. Does the allowance cover soft costs (architecture, engineering, permits) or hard costs only?
  2. Is any of the allowance allocated to base-building deficiencies the landlord should be responsible for delivering anyway?
  3. Am I required to use the landlord's contractor, or can I competitively bid the work?
  4. What's the disbursement schedule — milestone-based, or lump sum at completion?
  5. What happens to unused allowance — forfeited, or converted to a rent credit?

Get answers to all five before you let a single per-square-foot number decide which deal looks better. The headline figure is the opening bid in a negotiation most tenants stop before they've actually started.