The Commercial Landlord's Guide to Tenant Improvement Buildouts

Tenant improvement buildouts sit at the intersection of two competing interests: the tenant who needs a functional, on-brand space delivered fast, and the landlord who needs cost control, code compliance, and a tenant that opens on time and starts paying rent.

When TI buildouts go wrong, everyone loses. The tenant delays opening. The landlord carries vacancy longer than projected. The construction costs exceed the TI allowance and someone ends up in a dispute over who owes what.

Here’s how to structure and manage TI buildouts so they go right.

Start With a Defined Scope Before Lease Execution

The biggest mistake landlords make is executing a lease with a TI allowance and no defined scope of work. This creates ambiguity about what the allowance covers, what happens when costs exceed it, and who makes decisions when the tenant changes their mind during construction.

Before you sign:

• Get preliminary construction drawings reviewed by a qualified GC or CM
• Establish a preliminary budget and contingency
• Define who manages the buildout: landlord-controlled or tenant-controlled
• Specify approved finishes and mechanical system standards

Landlord-Controlled vs. Tenant-Controlled Buildouts

Landlord-controlled: The landlord hires the contractor, manages the process, and delivers a finished space. The TI allowance is the landlord’s budget. This approach gives landlords maximum control over quality, timeline, and base building compliance, but also maximum responsibility if things go sideways.

Tenant-controlled: The tenant hires their own contractor using the TI allowance. The landlord reviews and approves plans and inspects work at key milestones. This is common with larger, sophisticated tenants (national retailers, healthcare operators) who have established build standards.

Both approaches work. The key is defining roles, approval processes, and budget accountability before construction starts.

Managing the TI Allowance

A TI allowance is not a blank check. Define exactly what it covers:

• Hard construction costs (labor and materials)
• Soft costs (permits, design fees, inspections)
• Landlord supervision fees (typically 5–10% on landlord-controlled projects)

Require your contractor to provide a full budget breakdown before work begins and a change order log that’s current throughout construction. Any changes to scope that affect the allowance should require written approval from both parties.

Common Pitfalls and How to Avoid Them

Scope creep: Tenants add finishes and features during construction that weren’t in the original scope. Establish a formal change order process and hold the line, with changes approved in writing only.

Permitting delays: In South Florida, permitting timelines vary significantly by municipality. Factor realistic permit timelines into your schedule and start the permitting process as early as possible.

Mechanical conflicts: New tenant spaces often require modifications to HVAC, electrical, and plumbing that affect base building systems. Have these reviewed early, as discovering conflicts during construction is expensive.

Punch list delays: Tenants are eager to open and often accept spaces with significant unresolved punch list items. This becomes leverage you lose. Require a completed punch list before issuing the final TI disbursement.

Dunn Development has completed TI buildouts for major commercial tenants across South Florida including Southwest Airlines, DHL, and CBRE. Contact us to discuss your next buildout.