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Turnkey or TI Allowance: Understanding the Terms Used in Leasing A New Lab Space

Congratulations! You’ve found a new space to move your lab operations into!

It sounds simple: hire an architect, they will tell you what you need. Hire a contractor, they will build it. But in truth, especially with lab space, it’s not that simple. Understanding the difference between turnkey and a Tenant Improvement Allowance is crucial in understanding how much involvement you need to have during the process of building out the space. Regardless of your decision, it’s best to have an owner’s representative to help guide you through the process.
TI and Turnkey – who owns the work?
The first thing to decide is how much involvement you’ll need in designing and building out your space. There are two standard lease terms used to describe this:

  1. Turnkey: the landlords builds the space out for you, in a “turnkey” arrangement
  2. Tenant Improvement Allowance (TIA): the landlord provides an allowance but the tenant builds the space out themselves.

While both arrangements help to finance the work over the course of the lease, there’s one key difference and that is: who is paying for the work?

If a turnkey is offered, the landlord is responsible for making sure you occupy the space by your rent start date. The landlord will also receive and pay the design and construction costs. In a TIA, you “own” the design and construction (including the costs), making the tenant responsible for paying rent on a certain date, whether you occupy the space or not. In a TIA, the tenant will pay for the work and submit for reimbursement by the landlord in pre-determined milestones.

Turnkey

The turnkey option is a good solution for smaller leases, especially when the tenant doesn’t have resources or experience in building out space. However, in a turnkey, you need to make sure the landlord has experience in the type of lab space you need. The requirements of the lab, especially power, pure water and waste handling, proper ventilation and storage requirements, can be new to a landlord and their team.

It’s crucial to remember that the landlord is paying the architect and contractor – they are the client and manage the cost of construction for you. Depending on the landlord and the team, you may not be able to contribute to the design and construction process as much as you’d like.

TI Allowance

With a Tenant Improvement Allowance, the tenant is responsible for finding and hiring the architect and contractor. In this option, the tenant has control over the design and build-out of the space. This also means the tenant manages the designer and contractor and pays them directly. The Landlord will reimburse the tenant based on terms outlined in the lease, but may not pay for all items, so read the lease carefully and understand what qualifies and what doesn’t.

With a TI allowance, the tenant can spend time determining how the space will look and function. This is particularly true when mechanical systems and specialty equipment are involved. In this option, you can be sure that you’ll be familiar with every aspect of your space. This in itself is a benefit in operating your new environment. Control of the budget and schedule is in the tenant’s hands and decision making can be critical to ensure you can occupy before any “free rent” period ends.

Have the Right Team

Knowing your requirements is critical – a good architect, engineer, and contractor can only guide you to a certain extent. In order to reach success (in any project), you must make sure that you have the right team by your side. Regardless of which path you take, an owner’s representative on your side will help you navigate the process and look after your interests.

Hereva is dedicated to helping tenants make sure they are getting the space they need and are paying for. Let us help you on your next project.

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