When a business is looking to lease a commercial space in Long Beach, there are a lot of factors to consider. Certainly, they are looking at the size of the space and the monthly lease amount, but there is another important aspect that savvy business owners will make sure they consider when looking for the right commercial space: tenant improvements.
What Is a Tenant Improvement Project?
A tenant improvement, or TI, is the customization of a rented or leased space that makes it suitable for the specific business needs of the tenant. Tenant improvements can be as simple as changing out flooring and painting the walls of a commercial space, or as complex as rearranging a floorplan and upgrading electrical systems to accommodate specialized equipment.
Who Pays for Tenant Improvements in Long Beach?
There is no “one” way to do things when it comes to paying for tenant improvements, but the most common practice is for the landlord to foot the bill for any modifications to the space. A good landlord will want their tenants to be in a space that will suit them long-term. A healthy TI budget will allow the tenant to make the improvements they need, so they can conduct their specific business effectively, in a comfortable and attractive environment.
Typically, the landlord will provide the tenant with a tenant improvement allowance to pay for any needed and/or desired improvements. The exact amount is negotiated as part of the lease terms. Anything over and above that amount is typically the responsibility of the tenant. Tenant improvement allowances are meant to cover build-out expenses, including the cost of a Long Beach tenant improvement architect, permits, and the labor and materials used in construction.
TI funds are generally not to be used for things like furnishings and other interior décor items, or for the equipment needed to run the business. Those items would be a cost incurred by the business (as would any items that could be taken with the business, should they decide to move to another space when the lease term is up).
In a commercial rental market that favors tenants, a tenant can typically negotiate a considerable tenant improvement allowance. However, when rental spaces are scarce, a landlord holds the superior position and can afford to be a little less generous in the allowance they offer. A tenant will likely have to agree to a lengthy lease term and a rental rate that’s at or above market value to secure their desired tenant improvement allowance in a landlord’s market.
The landlord may give the tenant a lump sum up front to complete the needed work, or they may want all of the improvements to be completed before handing over the money to the tenant. In other cases, a landlord will offer a free rental period, and the tenant uses the savings to pay for the improvements. A landlord may also opt to offer the tenant decreased rent for a certain amount of time, in which case the tenant would be required to foot the bill themselves for any improvements.
Who Handles the Design and the Completion of Tenant Improvements in Long Beach?
Who controls the build-out process is also up to negotiation. The landlord may allow the tenant to hire their own contractors to complete the work, or the landlord may require the tenant to use a specific contractor.
When the landlord controls the entire process, it is known as a “turnkey build-out.” This doesn’t mean that the landlord decides what modifications to make—they still do the tenant improvements according to the tenant’s specifications—it just means that the landlord handles all the details and expenses. Many Long Beach business owners prefer a turnkey build-out because they are busy with the details of running their own business. Landlords like to do turnkey build-outs because they allow them to be in better control of the costs and the quality of the work.
However you choose to negotiate the terms of your tenant improvement, make sure everything is clear and in writing. It would be wise to have a lawyer look over the terms of the agreement to make sure all the bases are covered.