What is a fair tenant improvement (TI) allowance, and who pays for what?

A fair tenant improvement (TI) allowance is the landlord-funded buildout budget that's normal for your space type, lease term, and local market — there's no universal number, but as a 2026 directional benchmark, allowances commonly run roughly $10–$30 per square foot for already-built ("second-generation") space, $30–$60 for a white-box delivery, and $60–$100+ for a bare ("cold") shell, with restaurants and medical/dental often higher because they need far more specialized work (The Cauble Group). As a rule of thumb, the landlord pays for the base building (structure, roof, exterior walls, core systems, code-required work) and contributes the TI allowance toward your interior buildout; you pay for anything above the allowance, plus your furniture, equipment, and most soft costs.

One thing to keep straight up front: a TI allowance (what the landlord contributes) is not the same as the total build-out cost (what the work actually costs). The allowance is usually a fraction of the full cost — so "$80/sqft to build a restaurant" and "$80/sqft TI allowance" are very different numbers. Local broker guidance and a current contractor quote should control over national ranges, because TI allowances and buildout pricing move sharply by market. Below is how to tell whether an allowance is reasonable for your deal, what a landlord is actually on the hook for versus what they'll quietly push onto your tab, and the three ways TI gets delivered — turnkey, straight allowance, and amortized — because the structure changes who really pays.

What counts as a "fair" TI allowance for your space

There is no single fair number, because the cost of making a space usable varies wildly by use — a warehouse needs almost nothing; a restaurant needs grease traps, hoods, gas lines, and ventilation. The benchmarks below are 2026 allowance ranges (not total build-out costs) you can use to sanity-check an offer. Treat them as negotiating anchors, not guarantees: they shift with local market conditions, building age, and how hungry the landlord is for tenants.

• Office and retail — second-generation (a prior tenant already built it out): ~$10–$30/sqft
• Office — white-box / vanilla-shell delivery: ~$30–$60/sqft
• Cold-shell (bare) office or retail: ~$60–$100+/sqft
• Restaurant / food service: often $100/sqft and up — the buildout is expensive and the allowance, while larger, rarely covers all of it
• Medical / dental: allowances commonly ~$50–$120/sqft (dental and surgical uses run higher), because the buildout — specialized plumbing, electrical, shielding — is far more expensive than the allowance
• Industrial / warehouse: ~$5–$15/sqft for second-generation space

These allowance ranges draw on The Cauble Group's 2026 TI guide, whose figures reflect mid-size U.S. markets and are explicitly "directional starting points," and LoopNet's TIA explainer. They tighten in landlord-favorable markets and stretch in soft ones, so verify against current quotes from a local broker before you conclude an offer is low — coastal and gateway markets in particular can run well above these numbers.

Three factors do most of the work in deciding what's fair for your deal:

1. Lease term. Landlords amortize TI over the lease, so a longer term justifies a bigger allowance. A 10-year tenant can fairly expect more per square foot than a 3-year tenant in the same building.
2. Your credit. An established business with strong financials commands more TI than a first-time operator or startup, because the landlord is betting on you paying rent long enough to recoup it.
3. Market conditions. In a high-vacancy market, landlords compete with bigger allowances and free rent. In a tight market, they hold the line.

So if a broker tells you "$40/sqft is standard," the honest answer is: standard for what use, what term, what credit, and what market? A $40/sqft allowance on a 7-year lease for a profitable tenant in a soft market may be light; the same number for a 2-year first-time tenant may be generous.

Who pays for what: base building vs. tenant work

The single most useful distinction in a TI negotiation is base building work (landlord's job) versus tenant work (your job, funded partly by the allowance). Landlord work typically covers base building systems, structural modifications, and code-compliance upgrades required for the space to be legally occupiable. Tenant work covers your interior finishes, specialized equipment, and customizations beyond standard delivery (Pulley).

What landlords generally pay for (base building, outside the allowance):

• Structure, foundation, roof, exterior walls, and building envelope
• Core building systems brought to the space (main HVAC, primary electrical service, water/sewer mains)
• Common areas, lobbies, elevators, and shared restrooms
• Code-required and ADA upgrades to the base building (not always — read the clause)

What the TI allowance is meant to fund (your interior buildout):

• Demising and interior partition walls
• HVAC distribution within your suite, lighting, electrical, and data rough-in
• Flooring, ceilings, paint, millwork, and built-in finishes
• Plumbing fixtures, hardwired equipment, and structural reinforcement specific to your use

What you almost always pay out of pocket (not eligible for TI):

• Furniture, fixtures, and movable equipment (FF&E) — desks, chairs, removable cabinetry
• Technology — servers, phone systems, removable AV
• Many soft costs the landlord won't recognize — your architect, project manager, and permit expediters
• Cost overruns above the allowance

Watch the gray zone. Landlords sometimes pre-install required base-building components and then charge those costs back to you out of the TI allowance, shrinking what's left for your actual buildout (Pulley). Get a written, categorical list of what the allowance can and cannot be spent on before you sign — "TI may be used for improvements" is too vague, and the landlord can reject out-of-scope invoices after the fact.

Delivery condition also decides who pays for the commodity work. A warm shell (a.k.a. vanilla shell or white box) means the landlord delivers the space partially finished — basic HVAC, drywall, lighting, restrooms, and utility connections. A cold shell (gray shell) is bare: raw floor, exposed structure, no HVAC, no ceiling — you build everything (Buildrite). These terms aren't standardized — one landlord's "vanilla shell" includes more than another's — so get the delivery condition spelled out, not just labeled. Cold-shell delivery should come with a meaningfully larger allowance, because you're absorbing work a warm-shell landlord would have done once for any tenant.

Turnkey vs. allowance vs. amortized: the structure decides the real cost

The dollar figure is only half the story. How the TI reaches you changes who carries the cash and the cost-overrun risk.

Turnkey buildout — landlord builds and pays

In a turnkey (build-to-suit) delivery, the landlord constructs the space to your approved specifications, manages the contractors, and absorbs cost overruns. You approve the design and finishes; the landlord owns the execution and the budget risk (Perillo Construction). This is the most tenant-protective structure for cash and risk — minimal outlay, limited overrun exposure — but you give up control over contractor selection and finish quality. The catch: landlords build their construction cost (and a margin) into your rent, so "free" turnkey is paid for over the lease term. Best for first-time tenants, tight cash, and simple buildouts.

TI allowance — you build, landlord reimburses up to a cap

With a straight allowance, you negotiate a cash budget, manage the build, and the landlord funds it up to the cap. You control quality and finishes; you also eat every dollar over the allowance and, in a reimbursement structure, you typically front the cash and wait to be repaid after the work is done and lien waivers are in (LoopNet). Best for tenants with project-management capacity and cash, or specialized buildouts where you need control.

Amortized TI — landlord lends the extra and adds it to rent

When your buildout costs more than the allowance, the landlord may fund the gap and recover it through your rent as an amortized TI charge — essentially an interest-bearing loan baked into the lease, commonly at 6%–10% interest over the term (AQUILA Commercial). For example, an extra $20/sqft amortized over 5 years at 8% works out to roughly $4.87/sqft/year in additional rent. Amortized TI is useful as backup funding so you don't need all the cash on hand, but it isn't "free money" — it's debt at a rate that is negotiable, and shaving even a point off the rate on a large allowance over a 10-year term saves real money. Don't accept the amortization rate as fixed.

The honest summary: with a pure allowance, you pay for overruns directly. With turnkey or amortized TI, you usually pay through higher rent over the life of the lease. There's rarely a structure where the landlord simply eats the cost — the question is when and how you pay it back.

A quick reality check before you sign

Run the offer through three questions:

1. Is the number in range for my use, term, and market? Compare against the benchmarks above and a local broker's read — and confirm whether the figure is an allowance or a full build-out cost.
2. What does the allowance actually cover — and what's being charged back to it? Get the eligible-cost list in writing.
3. What's the delivery structure, and what happens to overruns and unused TI? Turnkey, allowance, or amortized — and is there a forfeiture deadline, supervision fee, or clawback if you leave early?

If you want the deeper negotiation tactics — anchoring the ask, trading rent for TI, and killing the common clawback clauses — see our tenant's playbook for negotiating a TI allowance and the broader commercial lease guide. For the construction-lien side of a buildout, see tenant improvements and liens.

Reading TI language by hand is where owners miss the chargebacks and clawbacks. If you'd rather not, BizLeaseCheck reads your lease and flags every TI-related clause — the allowance amount, delivery structure, supervision fees, forfeiture deadlines, early-termination clawback, and what the allowance does and doesn't cover — with the exact wording quoted back to you; if you're comparing tools, here's our roundup of the best AI commercial lease review tools.

Frequently asked questions

Is a tenant improvement allowance taxable income to the tenant?

It can be, and the treatment is technical — confirm it with your CPA rather than relying on a blanket rule. In general, permanent improvements you make are treated as depreciable property; qualified improvement property (interior improvements to nonresidential buildings) is generally depreciated over 15 years using the straight-line method (IRS Publication 946; IRC §168(e)). There's also a specific provision — IRC §110 — that lets certain retail tenants on leases of 15 years or less exclude a qualifying construction allowance from income when its conditions are met. Because eligibility turns on details like who owns the improvements and exactly how the lease is written, get the tax treatment confirmed by a professional before assuming it's taxable or not.

What happens to unused TI allowance?

It depends entirely on your lease, and the default usually favors the landlord. Many TI clauses are "use it or lose it": you must claim the allowance within a set window after commencement (often several months to a year) or forfeit it. If you finish under budget, you may simply lose the difference unless you negotiated otherwise. Better terms to ask for: apply unused TI as a rent credit, lengthen the claim window, or reserve it for future tenant-funded improvements during the term. Read the forfeiture language before you sign — it's one of the most common places TI value quietly evaporates.

Does a higher TI allowance always mean a better deal?

No. A bigger headline allowance often comes with higher base rent, because the landlord recovers the TI over the lease — directly in turnkey and amortized structures, and indirectly through rent in many allowance deals. A $70/sqft allowance at a higher rent can cost you more over a 10-year term than a $40/sqft allowance at a lower rent. Look at total occupancy cost — rent plus operating expenses, against the real, usable allowance after chargebacks and fees — not the TI number in isolation.

Who owns the improvements when the lease ends?

In many commercial leases, permanent or integral improvements become the landlord's property at the end of the term — they're attached to the building and stay unless the lease or applicable fixture law says otherwise. Trade fixtures and removable tenant property are different. That's a core reason landlords fund TI in the first place: they're investing in their own asset. Some leases also require you to remove certain tenant-specific improvements and restore the space at your cost ("restoration" or "make-good" obligations), which can be an expensive surprise — sometimes five or six figures. Check whether your lease requires restoration and, if so, negotiate to limit it to non-standard alterations rather than the entire buildout. See do you have to remove your tenant improvements at lease end? for how to spot and cap that obligation.

This is general information, not legal, tax, or financial advice. TI clauses interact with construction-lien law, lease law, and tax rules that vary by state and by deal, and the figures here are 2026 estimates that move with the market. For a sizable buildout, run the lease past qualified counsel, a commercial broker, and a CPA before signing.