Expert: Brian Bocchieri - 4/14/2008

Question
Hello Brian,

I own a multi-unit commercial property where I am currently transferring one tenant to another unit. However, as a result of this change the tenant expects a few upgrades to the new unit. My question is this: how to I determine the reasonable figure to allot my tenant for these changes? Is there some kind of market standard figure where I can give it as a proportion to the rental earnings? For example, if my tenant signs a 3 year lease, the proportion of allowance vs. rental receipts is payable in a year's rent? Moreover, what would be the standard for a longer rent contract?

Thanks.

Answer
Hello Joseph;

It is really up to you as to what you can negotiate.  What type of upgrades are required?  How strong is your market as to if you had to replace the tenant?  

What you can do is obtain an estimate for what work is required.  If the work is tenant specific then you can amortize the cost over the length of the lease term.  If the work required is for building upgrades or for code violations or other upgrades that will out live the lease term you will need to amortize the amount over the useful life of the upgrade.  

I hope this is somewhat clear if not please let me know.

Wishing you all the best

Brian Bocchieri