Tenant improvement allowance: the TI allowance clause, extracted and tracked

The lease or its work letter states the allowance, most often as dollars per rentable square foot, and the conditions to collect it: completed work, lien waivers, invoices, sometimes a certificate of occupancy. The tenant builds out the space, submits its draw package, and the landlord reimburses up to the allowance. Some deals instead have the landlord perform the work itself (a turnkey build-out), which shifts the risk of cost overruns to the landlord.

Both parties, in practice. The landlord funds the allowance; the tenant pays every dollar above it. The allowance is not free money either: it is priced into the base rent over the term, which is why a deal with a large TIA usually carries higher rent than the same space taken as-is. Tenants comparing proposals should model the rent and the allowance together, not separately.

It depends on market, asset class, lease length, and the condition of the space, so treat any single number with care. Second-generation office space with a long lease commonly attracts a meaningful per-RSF allowance, while short terms and specialized uses attract less or none. The reliable rule: the longer and stronger the lease commitment, the more build-out money a landlord will amortize into it.

Under ASC 842, a TI allowance paid to the tenant is a lease incentive: it reduces the right-of-use asset (or is treated as a reduction of lease payments) rather than landing as income. Getting that right requires knowing the allowance amount, when it is received, and whether the improvements belong to the tenant or the landlord. Those inputs come straight from the lease, which is why the ASC 842 extraction pass captures incentives alongside term and payments. Tax treatment runs on separate rules (qualified lessee construction allowances under IRC Section 110 can be excluded from tenant income when the conditions are met), so accounting and tax teams both need the clause, not a summary of it.

Normally no, if the tenant performs the lease to the end of its term. But many leases claw the unamortized allowance back if the tenant defaults or terminates early, and amortized TI structures repay the allowance through a rent add-on with interest. Early-termination math should always include unamortized TI, which is one of the figures Leaseabstracts pulls into the termination options summary.

Upload the lease, work letter, and amendments, and the AI extracts the allowance amount and rate, the conditions to draw it, the outside date to use it, any amortization or clawback, and the restoration obligations at surrender, each field linked to its source clause. Portfolio teams see every unexpended allowance and every approaching outside date in one register instead of a hundred work letters.