Who Pays for a Commercial Finish-Out? Tenant Improvement Allowances and the Lease Clock

Last updated: September 2026

The tenant usually pays for a commercial finish-out, and the landlord reimburses part of it through a tenant improvement allowance written into the lease. The allowance is a capped dollar amount, paid out in draws against approved plans, lien waivers and invoices. Anything above the cap, and anything the lease excludes, is the tenant's cost. The date rent starts is a separate negotiation, and it decides who absorbs a late permit.

Most disputes over finish-out money come from three gaps: what the allowance covers, how it gets released, and when the rent clock starts relative to the permit clock. This post works through each gap for teams opening more than one location.

What is a tenant improvement allowance, and how is it different from turnkey or as-is?

A tenant improvement allowance is a fixed sum the landlord contributes toward the tenant's build-out, usually quoted per rentable square foot. Turnkey means the landlord builds the space to an agreed plan and hands over the keys. As-is means the tenant takes the space in its current condition and funds everything.

Each structure moves risk. With an allowance, the tenant controls the contractor and design, and carries any overrun. With turnkey, the landlord controls the build, and the tenant risks "landlord standard" finishes falling short of brand spec. As-is puts everything on the tenant, often in exchange for lower rent or more free rent.

Market data shows the size of the allowance line. CBRE analysed 4,350 new office leases across 12 U.S. markets and found the average allowance was $87.51 per square foot in 2024, down from $97.55 in 2023 [Source: CBRE 2025]. Retail runs lower. CompStak describes a "standard" fixed retail TI of $30 to $60 per rentable square foot [Source: CompStak 2025]. These are market figures, not a quote for any project. Kitchen-heavy uses often land outside these ranges, which is one reason restaurant programs need their own TI benchmarks.

How does a TI allowance actually get paid out?

The landlord releases the allowance in stages, called draws, after the tenant proves the work is done and paid for. Each draw package typically includes contractor invoices, a schedule of values, inspection sign-offs and lien waivers from the general contractor and subcontractors.

Before any draw, the landlord approves the plans. Most leases give the landlord a set number of days to approve construction documents, and many require landlord-approved engineers for roof or base-building mechanical work. This is where MEP coordination gaps surface.

Lien waivers are the part most tenants underestimate. In Texas, a lien waiver is unenforceable unless it substantially complies with one of four statutory forms: conditional and unconditional, for progress and final payment [Source: Texas Property Code 2025]. In Georgia, a signed interim waiver becomes binding 90 days after execution unless the claimant files an affidavit of nonpayment first [Source: Georgia Code 44-14-366 2025]. A brand building in Dallas-Fort Worth and Atlanta in the same quarter needs two waiver packages, or the draws stall.

One more term matters. Most leases say unused allowance is forfeited, though some allow a portion against rent. Ask before you sign.

What does a TI allowance cover, and what sits outside it?

The allowance normally covers hard construction that stays with the building: partitions, ceilings, flooring, lighting, HVAC distribution, plumbing rough-in, electrical and fire protection. It normally excludes anything the tenant can take away, and often excludes soft costs unless the work letter says otherwise.

The table shows the common split. Every lease differs, so treat it as a negotiation checklist, not a rule.

The middle column is where the dollars move. Kitchen exhaust, grease interceptors and roof penetrations are hard costs, but landlords often call them tenant-specific. For a convenience store adding fryers, those items can be the largest budget line. The U.S. Census Bureau put commercial construction spending at a seasonally adjusted annual rate of $122.5 billion in July 2026, with $116.2 billion of that private, down 4.9 percent from July 2025 [Source: U.S. Census Bureau 2026]. A softer market tends to give tenants more room on the middle column.

What is the lease clock, and when does rent commencement start?

The lease clock is the period between lease signing and the rent commencement date. Rent commencement is the day base rent becomes payable, set by a trigger written in the lease. The trigger, not the construction schedule, decides who pays for delay.

Landlords prefer fixed-date triggers. Tenants prefer triggers tied to events they do not control, such as permit issuance. The table shows the common options.

Permit duration is what makes the trigger matter, and published targets differ by city. Dallas sets 15 days for the initial commercial plan review after a five-day prescreen [Source: City of Dallas Development Services 2026]. Fort Worth lists a seven-business-day first review for commercial building permits [Source: City of Fort Worth 2026]. Third-party permit guides report a 10-business-day initial review window in Atlanta [Source: Permit Place 2025] and up to 14 business days in Oklahoma City [Source: Permit Place 2026]. Those are first-review targets. Resubmittals restart the clock, and two or three cycles are common on kitchen and MEP-heavy work.

What happens when permits run late after rent starts?

If rent commences before the permit is issued, the tenant pays rent on a space that cannot open. The only protections are the ones already in the lease: a permit contingency, a day-for-day delay clause, or a termination right after an outside date.

A day-for-day clause pushes rent commencement out by each day of delay from a defined cause. The narrower the cause, the weaker the clause. Landlords typically exclude delays from tenant design changes, incomplete drawings or slow contractor response.

Delay is not rare. In AGC's 2026 outlook survey of 951 contractors, 63 percent said an owner had postponed or cancelled a project in the previous six months, and the net reading for retail construction fell 13 points to negative 18 percent [Source: AGC 2026]. A lease with no permit protection turns a schedule problem into a rent problem. The permit and inspection sequence itself is covered in the commercial finish-out guide, so this post stays on the money.

What should a multi-site brand standardise in its tenant improvement allowance work letter?

A multi-site brand should standardise the work letter so every landlord negotiation starts from the same definitions of scope, draws, exclusions and rent triggers. The tenant improvement allowance amount will change by market. The mechanics should not.

Standardise these items across every lease:

• One scope definition that names the brand's kitchen, exhaust and low-voltage packages as in or out of the allowance.
• A draw schedule with a fixed number of progress draws, a stated landlord review period, and a defined final-draw package.
• State-specific lien waiver forms attached as exhibits, with Texas and Georgia handled separately.
• A rent commencement trigger tied to permit issuance or substantial completion, with an outside date.
• A landlord plan-approval window in business days, with deemed approval if the landlord does not respond.
• A statement on unused allowance: forfeited, applied to rent, or usable for a defined list of soft costs.

Landlords will negotiate. CBRE found free rent averaged 8.9 months in 2024 and total concessions remained about 30 percent above pre-pandemic levels [Source: CBRE 2025]. A consistent work letter lets a brand trade allowance dollars against free rent site by site without changing how the build is managed. That is the logic behind repeatable rollout programs: fix the template, then vary only what the site forces.

How ASEL10 approaches this

ASEL10 Services is a commercial general contractor working on tenant finish-outs, commercial remodels and multi-location rollout programs across Dallas-Fort Worth, Atlanta and Oklahoma City. The company does not negotiate leases. It builds to them.

In practice that means reading the work letter before pricing, so the scope template separates allowance-eligible work from tenant-direct items. Draw packages follow the landlord's format, with lien waivers matched to the state. Progress reporting is consolidated so real estate and construction teams see the same schedule against the same rent commencement date. Coordination is the deliverable.

The Taco Bell restaurant rollout in Texas used the same kitchen package, finish spec and inspection gates at every location, which is the construction side of a standardised work letter. The Massage Envy wellness build-out shows the same approach on a single finish-out. Where a brand needs one point of contact across landlords and jurisdictions, project management and trade coordination is scoped as its own service.

Frequently asked questions

What documents does a landlord need to release a TI draw?

Most landlords require a draw request on their form, the general contractor's invoice with a schedule of values, conditional lien waivers from the contractor and each subcontractor covering the current draw, unconditional waivers covering the prior draw, and evidence that inspections for the completed work have passed. The final draw usually adds the certificate of occupancy, as-built drawings, warranties and unconditional final waivers from everyone who worked on the site. Incomplete packages get returned, and each return can add weeks. Building the checklist into the contractor's closeout process keeps the allowance moving. The ASEL10 FAQ covers turnover documentation in more detail.

Does rent start if my permit is delayed by the city?

It depends entirely on the rent commencement trigger. If the lease sets a fixed date or a fixed number of days after delivery, rent starts on that date whether or not the permit has issued. If the trigger is tied to permit issuance, substantial completion or opening for business, the clock waits, usually up to an outside date. Many leases add a permit contingency that lets the tenant extend or terminate if permits are not issued within a set period. Read the definition of tenant delay closely. If the delay traces back to incomplete drawings or a design change, most leases treat it as the tenant's problem regardless of the trigger.

Is a bigger allowance always better than free rent?

Not always. A larger allowance funds construction the tenant must build anyway, but only up to the cap, and unused dollars are often forfeited. Free rent improves cash flow after opening and is not tied to construction receipts. The right mix depends on the build cost per site relative to the allowance offered. A brand with a light finish-out may leave allowance on the table and would do better with rent abatement. A brand with heavy kitchen or mechanical scope will typically use every dollar and should push for allowance first. Model both against the rent commencement trigger, because a late start eats free rent months as fast as it eats allowance.

Conclusion

The tenant pays for the finish-out. The allowance reimburses part of it, on the landlord's terms and schedule. The rent trigger decides who pays for a late permit. Fix the definitions, draw mechanics and trigger in a standard work letter, and the construction side becomes far easier to run across many sites. If you are planning finish-outs in DFW, Atlanta or Oklahoma City, Start Your Project.