Tenant Improvements: Who Pays for What?
Budgeting for a Build | Atlas Construction
A Space for Your Business Starts with a Clear Plan
You’ve found a commercial space with a promising location, an appealing storefront and room for your business to grow.
But before you picture opening day, take a closer look at what it will take to operate there.
Will you need private offices? A commercial kitchen? Specialized equipment? Additional restrooms? More electrical capacity?
Tenant improvements turn a commercial space into a place that supports a specific business. Those improvements also raise an important question:
Who is responsible for each part of the work—and who is paying for it?
A useful budget begins with understanding the space, defining the improvements and documenting responsibilities before construction starts.
Start with What the Building Actually Provides
A building can look nearly finished and still need substantial work before it supports your business.
Start by distinguishing base-building work from tenant-specific improvements.
Base-building work generally relates to the building’s underlying structure and shared infrastructure. Tenant improvements adapt the space for a particular operation. However, the boundary between them needs to be defined for your project.
For example, a building may have an existing heating and cooling system. That does not necessarily mean it can comfortably serve a restaurant kitchen, several enclosed treatment rooms or heat-producing equipment.
Likewise, electrical service may reach the building without providing the capacity, distribution or connections your business needs.
Food for Thought: A space that worked well for the previous tenant may require significant changes for the next tenant. Budget for these expensive updates.
Turn “Who Pays?” into a Written Scope
Payment is only one part of responsibility.
For each major item, identify who will:
Approve the design
Purchase materials or equipment
Hire and pay the Installer
Coordinate delivery and installation
Complete related connections
Handle maintenance after opening
Consider an owner-supplied commercial dishwasher. The tenant may purchase the machine, while installation requires electrical work, plumbing, drainage and coordination with cabinetry.
If the budget includes only the equipment purchase, several necessary expenses may remain unassigned - and that's not good for you!
An item supplied outside the builder’s contract can still create work inside the construction scope.
A simple responsibility list helps bring those connections into view. Review it with the landlord, tenant, designer and builder before treating the budget as complete.
Read the Lease Alongside the Construction Plan
The lease and any construction or work-letter exhibits deserve careful review. Identify provisions addressing alterations, design approval, improvement allowances, reimbursement, deadlines and ownership of improvements.
Discuss unclear language with a commercial leasing attorney before signing or committing to the work.
Seattle’s Commercial Lease Checklist highlights tenant alterations and improvement allowances as specific areas for review and negotiation. seattle.gov
Bring practical construction questions into that review:
Does the proposed layout match the space the landlord agreed to provide?
Is required landlord work clearly described?
What happens if an existing system needs an upgrade?
Who approves changes after construction begins?
Food for Thought: If an important promise affects your project, where is it documented?
Understand What the Landlord Allowance Covers
A tenant improvement allowance is a negotiated contribution toward eligible improvements. It should not be assumed to cover the entire cost of preparing the space.
Confirm eligible expenses, required documentation, payment timing and submission deadlines. Ask whether design, permits, equipment or other costs fall outside the allowance and what happens to unused funds. seattle.gov
Then distinguish the allowance from the project’s funding needs.
Timing matters too. If reimbursement follows completion, the tenant may need funds available earlier to keep work moving.
Food for Thought: Can your business fund the work when payments are due, even if reimbursement arrives later?
Look Beyond the Visible Finishes
Paint, flooring and cabinetry are easy to picture. The systems supporting the business can be less visible—and just as important to investigate.
Depending on the operation, planning may need to address:
Electrical capacity and equipment connections
Ventilation, exhaust and replacement air
Specialized plumbing or drainage
Data cabling and security systems
Equipment weight, anchorage and structural support
Fire alarm or sprinkler modifications
Access for equipment delivery and future servicing
A small appliance or piece of machinery can influence several trades. Obtain equipment specifications early so the team can evaluate connections, clearances and installation requirements.
The purchase price of equipment is only one part of the cost of putting it to work.
Confirm the Proposed Use and Approval Path
Before committing to a space, describe the intended business operation to the local permitting authority and project professionals.
Include details such as customer activity, staffing, equipment, food preparation, storage and delivery needs. These can help the team identify questions that a floor plan alone may miss.
A change from one business type to another may require additional review. Seattle’s permitting guidance, for example, distinguishes tenant improvements from changes of use.
Requirements for an Eastern Washington project must be confirmed with the jurisdiction responsible for that property. seattle.gov
Ask the team to identify the anticipated permits, reviews, inspections and conditions needed before occupancy or operation.
Food for Thought: Has the space been evaluated for your intended use, or are you relying on how it was previously occupied?
Bring Accessibility into the Conversation Early
Accessibility deserves attention while the layout and budget are still being developed.
Have qualified professionals evaluate the proposed work, including entrances, circulation, service counters, restrooms and any related accessible-route requirements.
Federal accessibility standards can apply to alterations and, in certain circumstances, the path serving an altered primary-function area. access-board.gov
Also distinguish contractual cost allocation from legal obligations. For covered public accommodations, federal regulations address responsibilities of both landlords and tenants; a lease can allocate responsibilities between the parties without eliminating obligations to people with disabilities. ADA.gov
Resolving these questions early gives the team more opportunity to coordinate them with the overall design.
Plan Backward from Opening Day
An opening date should reflect more than the anticipated construction duration.
Build a schedule that considers:
Landlord and design approvals
Permit review and required revisions
Utility coordination
Equipment manufacturing and delivery
Construction and installation
Inspections and required occupancy approvals
Equipment testing, staff setup and business preparation
Identify which activities depend on others. Cabinetry may depend on final equipment dimensions. Equipment installation may depend on utility upgrades.
Inspections may depend on completed connections - Check with Atlas to get a detailed list of inspections you can expect throughout your project build.
Leave room between construction completion and the first customer walking through the door.
Food for Thought: If one critical delivery slips, which other activities—and expenses—move with it?
Consider What Happens After Opening
Evaluate the space beyond its first day of use.
Will the layout accommodate more staff? Can equipment be replaced without major disruption? Is there room for additional storage, another service station or future technology?
Discuss maintenance access while equipment and cabinetry are being located. A layout that looks efficient on paper should also allow practical cleaning, repair and replacement.
Review lease provisions addressing ownership, removal and restoration at the end of the tenancy with your attorney. seattle.gov
Food for Thought: How much of your investment supports this location specifically and how much could move with your business?
Build a Clearer Plan with Atlas Construction
A successful tenant improvement project brings the business goals, existing building conditions, construction scope and budget into alignment.
Early conversations help reveal missing information, unassigned work and decisions that could affect cost or timing.
Bring your proposed location, available plans, equipment information and questions to the table. Atlas Construction can help connect your operational needs with practical construction considerations and identify what requires further evaluation.
Connect with Atlas Construction to discuss your tenant improvement project and planning goals.
Together, we can begin developing a clearer path toward a space that is ready to support your business.
This article provides general planning information. Lease terms and project requirements vary. Consult your attorney about lease responsibilities and qualified project professionals about design, permitting and construction requirements.
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