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Customizing a commercial space is rarely simple. Most businesses do not move into a space that is ready to use without changes. Walls may need to be moved, lighting upgraded, or systems modified to support daily operations.

This is where the tenant improvement process becomes essential.

Tenant improvements allow businesses to shape a leased space so it supports how they work, serve customers, and reflect their brand. At the same time, many leases include financial support from the landlord to offset these costs. Understanding what a tenant improvement allowance is and how it works can help you avoid delays, control costs, and reduce stress during the build-out process.

This guide breaks down the tenant improvement process step by step. It also explains how tenant improvement allowances work, what to watch for in lease negotiations, and how Kenwood Management helps tenants move through the process with confidence.

What Are Tenant Improvements?

Tenant improvements are the physical changes made to a commercial space to meet a tenant’s operational needs. These improvements can range from basic cosmetic updates to significant construction work, depending on the type of business and the condition of the space.

Common examples of tenant improvements include:

  • Installing or removing interior walls and partitions
  • Upgrading flooring, ceilings, and lighting
  • Repainting or refinishing surfaces
  • Modifying plumbing or electrical systems
  • Adding kitchenettes, break rooms, or specialized work areas
  • Installing equipment or infrastructure required for daily operations

These improvements impact how functional and efficient the space will be. Well-planned tenant improvement projects help businesses operate smoothly, support employee productivity, and keep the space aligned with brand and customer expectations.

What is a Tenant Improvement Allowance?

A key part of many commercial leases is the Tenant Improvement Allowance, often referred to as a TIA. The Tenant Improvement Allowance is a financial contribution provided by the landlord to help cover the cost of tenant improvement construction.

The allowance is usually calculated as a dollar amount per square foot. For example, a lease may include a tenant improvement allowance of $40 per square foot to be applied toward approved build-out costs.

How Tenant Improvement Allowances Are Structured

Tenant improvement allowances are negotiated as part of the lease agreement, and the structure matters. Common considerations include:

  • Turn-key build-outs: In a turn-key arrangement, the landlord manages and pays for the entire tenant improvement project. All improvements are clearly listed in the lease, making this one of the most tenant-friendly options.
  • Rentable vs. usable space: The lease should clarify whether the tenant improvement allowance applies only to the tenant’s usable square footage or includes rentable areas such as common spaces. This distinction can significantly affect the total value of the allowance.
  • Cost overruns: Construction costs can change once work begins. The lease should clearly state who is responsible if the tenant improvement project exceeds the allowance and whether there is a cap on additional expenses.

Tenant improvement allowance funds are typically disbursed in stages or after work has been completed and inspected. Clear payment terms help prevent disputes and keep the project moving.

The 5-Step Tenant Improvement Process

Understanding the tenant improvement steps helps tenants plan more effectively and avoid common setbacks.

Step 1: Negotiation and Lease Agreement

The tenant improvement process begins during lease negotiations. This is where the most important details are established.

The main items to address include:

  • Defining the scope of work and what types of improvements are allowed
  • Finalizing the tenant improvement allowance and how it will be applied
  • Determining responsibility for cost overruns
  • Aligning the substantial completion date with the start of rent payments

Using clear lease language at this stage protects both parties and sets realistic expectations for the build-out timeline.

Step 2: Construction Planning and Design

Once the lease is signed, planning begins. This stage focuses on design, compliance, and budgeting.

Tenants should work with experienced architects and contractors who understand tenant improvement construction. Plans must meet local building codes and ADA requirements. During this phase, a construction cost estimate is developed, though final costs may not be confirmed until plans are approved by the city or municipality.

When selecting professionals, tenants should confirm licensing, commercial tenant insurance, and relevant experience with similar tenant improvement projects.

Step 3: Managing Construction in Progress

Active oversight is critical once construction starts. Regular communication helps keep the tenant improvement project on schedule.

A few best practices include:

  • Ensuring utilities are set up before work begins
  • Requesting weekly progress reports with photos and inspection updates
  • Monitoring timelines and flagging potential delays early

Working with a licensed team familiar with local regulations reduces the risk of compliance issues and unexpected setbacks.

Step 4: Payment and Funding

Payment terms should follow what was agreed to in the lease. Contractors may be paid after renovations are completed or through milestone-based payments, depending on the project.

The tenant improvement allowance is typically applied toward these costs, either as reimbursement or direct payment. Clear documentation and approved invoices are often required before funds are released.

Step 5: Certificate of Occupancy

The final step in the tenant improvement process is getting a Certificate of Occupancy. This confirms that all work has been inspected and approved by local authorities.

Once the Certificate of Occupancy is issued, the space is officially ready for business use.

Make Commercial Tenant Improvements Work for Your Business with Kenwood

The tenant improvement process can feel complex, but it is manageable with the right guidance and structure. 

Kenwood Management works closely with tenants in Maryland and Washington D.C. to help them navigate tenant improvement decisions, understand allowances, and move through the process with confidence. Our goal is to create spaces that work for businesses today and support growth in the future.

To learn more about securing the right commercial space and planning your next move, download our free Guide to Choosing Your Next Office, Warehouse, or Flex Space!