Tenant Improvement Allowance – A Shell Game?

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I have many franchisees ask about Tenant Improvement Allowance. It almost sounds too good to be true to those that are just stepping into the world of Real Estate. “You mean the Landlord is going to give me money to help me physically build out my space? Wow! What a good guy!”

The concept of Tenant Improvement Allowance, sometimes called TA or TIA, isn’t about the Landlord doing you any favors. Many call it a ‘shell game’ because it can be used as a way to raise the base rent. In which case, you are essentially financing these ‘free’ improvements through, not only the initial term of your lease, but any future options you exercise.

That being said, TIA can help out those entrepreneurs that start out with only a small amount of capital. It’s a real balancing act. Too much TIA and your base rent is inflated. Watch out for this scenario when a Developer is about to flip the property. To make his or her balance sheet look better with large rent numbers, they’ll flood you with cash up front. Be smart about it. You’ll be paying the inflated rent for 5 or 10 years; this time period can be long enough for you to have paid the original TIA amount back 3 fold.