🏗️ Understanding Commercial Leasehold Improvements
🧱 Introduction
When leasing commercial space in Los Angeles, construction doesn’t stop at signing the lease — it often begins there.
Most businesses require modifications to make the space functional: office layouts, new flooring, lighting, or even a full build-out. These are called Leasehold Improvements or Tenant Improvements (TIs) — and understanding who pays, who owns them, and how they affect your bottom line is critical.
At Nail & Hammer Construction Corp, we guide both landlords and tenants through the TI process — from lease negotiation to final inspection — ensuring every dollar is well spent and fully compliant.
🏢 What Are Leasehold Improvements?
Leasehold improvements are permanent changes made to a rented commercial property to tailor it for the tenant’s operations.
These can include:
Interior walls, doors, and partitions
Flooring, ceilings, and paint
Lighting and electrical upgrades
Plumbing and HVAC modifications
ADA or accessibility improvements
Built-in counters, fixtures, or restrooms
Unlike portable furniture or equipment, these improvements become part of the building once installed — and ownership typically reverts to the landlord when the lease ends.
đź’° Tenant vs. Landlord Cost Responsibilities
Who pays for improvements depends on your lease structure and negotiation terms.
🔹 Tenant-Paid Improvements
In some cases, tenants fund their own construction, especially when:
They require custom designs or specialized build-outs.
The improvements exceed what’s considered “standard” for the property.
The landlord provides a raw “shell” or unfinished space.
🔹 Landlord-Paid (TI Allowance)
Many landlords offer a Tenant Improvement Allowance (TIA) — a set dollar amount per square foot to help offset build-out costs.
Typical TI allowances in Los Angeles range from:
$30–$60 per square foot for office spaces
$50–$100 per square foot for retail or restaurant spaces
Landlords often recoup this investment through slightly higher rent over time.
đź’ˇ Pro Tip: Always clarify whether the allowance is a reimbursement (tenant pays first) or a direct payment (landlord funds construction directly).
🧾 Permitting and Depreciation Benefits
🏗️ Permitting & Code Compliance
All leasehold improvements in Los Angeles require LADBS building permits — including electrical, mechanical, and plumbing upgrades.
At Nail & Hammer, we handle the full process:
Plan submittals and corrections with LADBS
Health Department coordination for restaurants or salons
Final inspection and Certificate of Occupancy
Failing to pull the correct permits can result in fines, delays, or even lease violations.
đź’¸ Depreciation & Tax Benefits
While landlords usually retain ownership of improvements, tenants may be eligible to depreciate their investment for tax purposes.
Under IRS rules:
Leasehold improvements can be depreciated over 15 years (if qualifying).
Shorter lease terms may allow accelerated write-offs.
Tenants may expense smaller upgrades under Section 179 deductions.
Always consult a tax advisor to align your renovation strategy with IRS depreciation rules.
🧮 How to Negotiate Construction Allowances
Negotiating the TI allowance can make or break your project budget.
đź’ˇ Negotiation Tips:
Get Detailed Bids: Present a contractor’s estimate (like Nail & Hammer’s) to justify the requested allowance.
Ask for Turnkey Delivery: Request that the landlord complete basic improvements before move-in.
Clarify What’s Covered: Some allowances only apply to structural or mechanical upgrades, not cosmetic finishes.
Secure Flexibility: Try to apply unused allowance funds toward rent, furniture, or signage.
Account for Permit Delays: Include a clause extending rent commencement if city plan review delays occur.
đź’¬ Pro Tip: Experienced contractors can often negotiate scope adjustments with landlords to keep projects on budget without compromising functionality.
🧰 Nail & Hammer’s Role in Leasehold Improvement Projects
Our design-build approach simplifies commercial build-outs from day one.
We Handle:
Site walk-throughs and feasibility reports
Coordination with landlords, tenants, and architects
Cost estimating and value engineering
Permitting, inspections, and documentation
Construction, finish work, and closeout reports
Whether you’re customizing an office, retail store, or restaurant, Nail & Hammer ensures your improvements meet code, budget, and timeline goals.
âś… Conclusion
Understanding leasehold improvements is essential to managing commercial property investments — whether you’re the tenant, the landlord, or both.
By knowing who’s responsible, how permits and tax benefits work, and how to negotiate TI allowances effectively, you can save thousands while building a functional, compliant, and attractive business space.
At Nail & Hammer Construction Corp, we bring decades of expertise to commercial renovations across Los Angeles — helping you make informed, cost-efficient construction decisions.
đź“ž Call 424-800-3704 today to schedule a consultation for your next commercial leasehold improvement project.
