Tenant Improvement (TI) Allowance: NYC Office Leasing, Explained

Q: What does TI typically cover?

Hard construction, walls, ceilings, HVAC distribution, electrical, pantries. Furniture, cabling and moving costs usually sit outside it, so budget them separately.

Q: What happens to unused allowance?

Depends on the lease: some deals let it offset rent, many forfeit it. Have the clause say what you want before signing, not after the buildout comes in under budget.

Money the landlord contributes toward building out your space, negotiated as dollars per square foot and typically funded against invoices as the work progresses rather than handed over up front. A bigger TI usually trades against rent or free months, because it is one currency in the same negotiation, and on shorter terms landlords fund less, which is why heavily built spaces often come with longer lease asks. Treat it as part of the deal's total economics, not a separate gift.

Updated 2026-09-30 · NYC leasing glossary · Nomad Group

Worth knowing

Allowance structures vary building to building; confirm every term on the specific lease and work letter.

How a TI allowance works in a New York lease

The allowance lives in the work letter, the lease exhibit that sets out who designs the space, who builds it, and how the landlord's money reaches the contractors. In the common New York structure the tenant runs the buildout, the landlord commits a fixed number of dollars per rentable square foot, and the funds arrive in draws against contractor invoices and lien waivers, generally after the work is in place rather than before.

Two definitions do the quiet work: what counts as a reimbursable cost, since hard construction almost always qualifies while design fees, permits, and cabling may not, and the deadline, because most leases give the tenant a fixed window to draw the money before the obligation expires. Both are drafting points, not market facts, so confirm them on the specific lease.

The arithmetic of trading TI against rent

The cleanest way to value an allowance is to put everything in the same unit. The citywide median asking rent on our book is $75 per square foot per year, so one month of free rent at that median is worth an even $6.25 per square foot, a figure to hold against any allowance a landlord floats. A landlord who will not move on TI can often deliver the same economics in free months instead.

The same conversion catches a proposal that raises the allowance while quietly raising the face rent, which moves money from one pocket to the other. The allowance is paid once, while a bump in rent per foot repeats every year of the term, so a tenant taking higher rent for a bigger TI is often financing the buildout at a rate the lease never states.

What a tenant-side broker pushes on

Once the headline number is understood as a trade against rent, the negotiation belongs on the mechanics: a broad definition of reimbursable costs, a draw schedule that pays monthly rather than holding everything to completion, a long window to use the funds, and language converting any unused balance into a rent credit. Delivery condition matters too, because a landlord who hands the space over demolished, level, and code compliant has added to the allowance without writing a check.

Nomad represents tenants exclusively, never landlords, and across 300+ delivered New York offices the pattern holds: when a TI deal goes wrong, it goes wrong in the disbursement mechanics rather than the headline dollars.

The traps that cost tenants money

Most TI losses are written into the lease months before anyone swings a hammer. The ones we see most often:

Funding conditioned on the tenant not being in default, so one late payment can freeze draws mid-construction.
Use-it-or-lose-it deadlines that expire while permits are still pending, a real risk when approvals move at the building's pace rather than yours.
Supervision fees deducted from the allowance itself, so the number you negotiated never fully reaches your contractors.
An oversized allowance that is really a loan, amortized back into the rent without the implied interest rate ever being stated.

Each of these is negotiable before signature and nearly impossible to fix after; read the work letter as closely as the rent schedule.

What does TI typically cover?

Hard construction: walls, ceilings, HVAC distribution, electrical, pantries. Furniture, cabling, and moving costs usually sit outside the allowance, so budget them separately and get the definition of reimbursable costs in writing.

What happens to unused allowance?

It depends on the lease: some deals convert the balance into a rent credit, many forfeit it. Have the clause say what you want before signing, not after the buildout comes in under budget.

Who negotiates this for the tenant?

Your broker, and the incentives matter. Nomad represents tenants exclusively, never landlords, across 300+ delivered New York offices, so the push for a broader allowance and a cleaner draw schedule comes without a landlord relationship pulling against it.

How is the allowance actually paid out?

Rarely as a check up front. The standard New York mechanic is reimbursement in draws against invoices and lien waivers, so the tenant fronts the cost and recovers it as work completes. Confirm the draw terms on the specific lease.

Is a bigger allowance always the better deal?

Not on its own. A larger allowance often arrives with a higher face rent that repays the landlord over the term, so convert every proposal into dollars per square foot, the way we price free rent against the $75 citywide median.