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Construction allowance refers to a financial incentive granted to a tenant to spend on improving the rented space so that it is set up to the needs of the tenant.
It is also sometimes referred to as tenant improvements.
The allowance which can come in the form of cash or rental credit can be used for remodeling, decorations, repairs, installation of fixtures, etc.
For example, commercial tenants usually need to spend money on renovating a place to cater to their needs. So they might have to incur expenses on partitions, walls, new paint, decorations, lighting, etc.
When the rental demanded by landlords is considered as too expensive or simply unaffordable, the landlord might offer construction allowance so that the potential tenants has an easier decision to make.
This can be common with landlords who run their own contracting business.
By offering this incentive, tenant would have to use the landlord’s construction service and use the credits provided, and top of the excess (if any) in cash.
In this way, the landlord would boost the revenue of his contracting business too.
As the construction cost might be in the tens of thousands, having that cost subsidized by the landlord can be a huge incentive to sign up for the lease.
In fact, when landlords don’t offer them, tenants can also try their luck and make a request for them.
When construction allowance is given, smart tenants who have not fully used up the budget should find a way to request the balance to be given as a rebate to rental.
This enable one to make full use of the incentive.
And when the contract specifically states which area of the premises the allowance is to be used for, any necessary repair expenses on areas outside of the stated areas should be paid by landlords.