The headline allowance number in a lease proposal is close to meaningless on its own. What matters is the work letter — the lease exhibit that defines what the allowance can be spent on, what condition the space is delivered in, and how you get the money. Two leases with the same per-foot allowance can fund wildly different amounts of your actual project.
What allowances usually cover
- Hard construction costs — demolition, framing, drywall, ceilings, flooring, paint, doors and hardware.
- Mechanical, electrical, plumbing and fire protection within the premises.
- Building permits and, sometimes, plan-check fees.
What they often exclude
- Furniture, fixtures and equipment.
- Low-voltage cabling, data, security and audiovisual.
- Architecture and engineering fees.
- Signage, moving costs, and the tenant’s own project-management costs.
Some leases let you apply a capped portion of the allowance to these “soft costs.” Many do not. If your soft costs are 20 to 30 percent of the project, that distinction is the difference between a covered build-out and a large out-of-pocket bill.
The other fine print
- Base-building condition — what you are being handed. If it is a bare shell, more of your allowance goes to work that a “warm shell” tenant would not pay for.
- The draw deadline — allowances routinely expire 9 to 12 months after the commencement date. Unspent money is lost.
- Overage treatment — cash at closing, or amortized into rent.
Read the work letter before you sign, and price your build-out against what it actually funds — not the number in the proposal email.