TI (Tenant Improvement) Allowance
How TI allowances work in commercial leases — fixed dollar vs turnkey, what counts as eligible cost, draw mechanics, and APAC fit-out norms.
Last updated: 2026-05-06
A TI allowance — short for Tenant Improvement allowance — is money the landlord agrees to spend (or reimburse) on building out a tenant's space. It is one of the largest negotiated economic terms after rent itself, and it is also one of the most heavily fenced by definitional language in the lease.
How TI allowances are structured
There are three common shapes.
A fixed-dollar allowance is the most common in office leases: the landlord agrees to a per-square-foot or lump-sum cap (for example, US$60 per rentable square foot in a New York office, or HK$300 per square foot in Hong Kong) and the tenant runs the build. Anything over the cap is the tenant's cost. Anything under the cap typically does not convert to free rent unless the lease explicitly says so.
A turnkey build is the opposite: the landlord delivers the space finished to an agreed plan, takes the risk of cost overruns, and the tenant moves in. Turnkey is common in smaller suburban deals and in some APAC core+ buildings. The trade-off is that the tenant has less control over finishes and timing.
A hybrid is the most negotiated: a fixed allowance plus a landlord-provided "shell condition" with specific items (HVAC zoning, sprinkler density, base building lighting, restroom readiness) defined as the landlord's responsibility. The lease should be explicit about what is shell and what is TI; otherwise reconciliation arguments multiply.
Eligible vs ineligible costs
This is where leases get fought over. A landlord-favourable lease will limit TI to "hard construction costs" — partitions, ceilings, flooring, electrical, mechanical, plumbing — and exclude soft costs (architecture, engineering, project management), FF&E (furniture, fixtures, equipment), data cabling, and tenant signage. A tenant-favourable lease pulls more into the eligible bucket, often capping soft costs at 10% to 15% of the total allowance.
Read the draw schedule carefully. Allowances are paid against documented invoices, lien waivers from each contractor and subcontractor, and certificates of substantial completion. Some leases require a 5% to 10% retention until final completion and a clean punch list. If the tenant is borrowing against the allowance to pay vendors, mismatched draw timing can create a working-capital gap.
A common trap is the deadline to draw. Many leases require all reimbursement requests to be submitted within twelve months of lease commencement; anything submitted after that is forfeit. For a phased build or a long permitting cycle, this clause is worth extending in advance rather than negotiating mid-build.
Amortisation and rent-equivalent value
TI allowances are economically rent. A US$60 per square foot allowance on a ten-year lease at a 6% discount rate is roughly US$8 per square foot per year of effective rent reduction. In a sale or recapitalisation, both sides want to know the net effective rent (face rent minus amortised TI minus free-rent periods), and a tenant comparing two competing offers should run that math rather than compare face rents alone.
APAC variations
Hong Kong landlords typically deliver Grade-A office space as bare shell with raised flooring and basic ceiling ("warm shell"), and TI allowances of HK$200–500 per square foot are common in stable markets. Renewals often include "refurbishment allowances" — smaller TI bumps to refresh finishes without a full rebuild.
Singapore norms are similar to Hong Kong, but landlords more often frame TI as a "fit-out period" of two to four months of rent-free time, leaving the build cost entirely to the tenant. Pure dollar allowances are less standard and tend to appear in larger deals.
Japan office leases historically did not pay TI; tenants funded fit-out themselves and paid 更新料 (renewal fees) on lease anniversaries. International-grade Tokyo towers are now offering US-style allowances, especially for foreign tenants in Marunouchi and Roppongi, but this is far from universal and worth confirming early in negotiations.
If you have a stack of leases and want every TI allowance, draw deadline, and condition tagged with a page citation back to the PDF, LeaseTrace handles that automatically.