Tenant-improvement allowance

A tenant-improvement allowance is money the landlord agrees to put toward the tenant’s work, usually stated per square foot and always defined by the lease. It is not a discount printed in Item 7. Some footnotes mention that a landlord contribution could reduce the franchisee’s cost. Few Item 7 tables put a guaranteed allowance in the low column. Subtracting a hoped-for TI from the construction high and calling the remainder the budget is how projects run out of cash during the build.

The commercial real-estate explanation from Cushman & Wakefield describes the allowance as a pre-negotiated contribution. Eligible costs, disbursement timing, unused balances, and whether the tenant pays first are lease terms. Item 7 cannot see them.

Construction cash is still due

The construction-bucket rows in this dataset are the amounts a buyer has to place next to any allowance, not net of one:

Brand	Construction-related labels	Low	High
German Doner Kebab	Leasehold Improvements; MEP; Fit Out; Architects and Project Manager Fees	$355,000	$680,000
Shah’s Halal Food	Build-Out/Construction	$80,000	$160,000
The Great Greek	Design and Project Management Fee; Leasehold Improvements	$260,000	$660,000
Mad for Chicken	Architectural Plans; Leasehold Improvements, Construction and/or Remodeling	$85,000	$255,000
375° Chicken ‘n Fries	Architectural Plans; Leasehold Improvements, Construction and/or Remodeling	$108,000	$212,000

GDK’s leasehold-improvements low of $0 is the closest the public tables come to “someone else paid for the room.” Even then, MEP of $150,000–$175,000 and fit-out of $175,000–$205,000 remain. An allowance that covers only landlord-defined base building work would not touch those rows. An allowance that reimburses tenant finish might. The lease, not the $0 cell, decides.

Great Greek’s leasehold high of $650,000 is the figure that most tempts a back-of-envelope TI. On a 1,800–2,000 square-foot shop, a $150 per square foot allowance would be $270,000–$300,000 — a real number, and one this directory does not attribute to Great Greek, because the filing does not state it. If a specific lease actually offered that, the cash-flow question would still be: does the landlord pay the contractor, or reimburse the tenant after lien waivers, inspections, and proof of payment?

Shah’s construction high of $160,000 is small enough that a modest allowance could appear to “cover” it. That appearance is dangerous if the fixture package ($30,000–$50,000), deposits ($3,000–$10,000 of Real Property), and additional funds ($10,000–$30,000) are still due in the same months, and if the allowance arrives after opening. Minnesota’s public Shah’s Halal filing is the document that shows those rows as separate opening costs.

Four cash-flow structures, one Item 7 cell

Treat the allowance as one of four structures, written into the lease:

1. Landlord performs. The landlord’s contractor delivers a defined condition. The tenant’s Item 7 construction rows cover only tenant extra work. GDK’s $0 leasehold low is the shape of this assumption; it is not proof that a given landlord will perform.
2. Landlord pays the tenant’s contractor directly. Draws go to the general contractor against inspected work. The tenant still needs a contract, insurance, and often a completion guaranty.
3. Reimbursement after the tenant pays. The tenant funds the job, then invoices the landlord. This is the structure that Item 7 most often fails to fund, because the construction high and the deposit line are both due before the reimbursement check.
4. Rent credit. The “allowance” is a period of free or reduced rent, not a construction check. It does not pay the contractor. It may or may not overlap the build.

The City of Seattle’s public commercial lease tool asks when rent starts, who performs landlord work, and how improvement obligations appear in the final lease. Those three questions are the TI analysis. Item 7 answers none of them.

What the allowance usually will not pay

Allowances are often limited to hard construction in the premises. They commonly exclude:

• furniture, fixtures, and equipment (GDK restaurant equipment $140,000–$175,000; Shah’s fixture package $30,000–$50,000; Mad for Chicken FF&E $85,000–$110,000; 375° FF&E $100,000–$120,000);
• Great Greek’s restaurant package of $225,964–$248,560, unless the lease says otherwise;
• signage (GDK $20,000–$35,000; Shah’s $10,000–$28,000);
• professional fees outside the landlord’s architect;
• opening inventory and grand-opening advertising;
• the franchise fee.

A lease that reimburses “all tenant improvements” still needs a definition. Millwork that looks like construction to the operator can look like furniture to the landlord’s lender. The equipment and restaurant package chapters are where those boundary fights belong; here the point is that an allowance is not a second Item 7.

Unused allowance is another trap. Some leases let the tenant take unused TI as a rent credit; some forfeit it; some require it to be spent on landlord-approved items by a date that sits before the restaurant can open. A footnote that says “landlord contributions may reduce your cost” does not say what happens to the unused balance.

Worked example: do not net the high end

Take Great Greek’s construction-bucket high of $660,000 and its total high of $1,088,560. Suppose a lease offered $200,000 of TI on reimbursement. The opening cash need is still the contractor’s draws plus deposits of $5,000–$16,000 plus the restaurant package of up to $248,560 plus additional funds of up to $75,000, until the landlord pays. If reimbursement lags ninety days after each draw, the buyer is financing the allowance. Item 7’s printed total does not include that financing.

GDK’s total high of $1,123,000 already includes construction up to $680,000. Netting a speculative $100,000 allowance would produce a $1,023,000 “adjusted Item 7” that no filing issued. The directory does not print that number. A project budget can, if the lease is signed and the disbursement mechanics are written down.

Döner Haus’s issued range of $359,500–$586,000 has no construction line in this dataset. No TI can be inferred from it.

TI checklist

1. Read the Item 7 construction footnotes for any mention of landlord contribution. Treat a mention as a possibility, not as a cell in the table.
2. Obtain the lease’s TI exhibit: amount, eligible costs, unused balance, disbursement, and whether the tenant pays first.
3. Build a monthly cash calendar with contractor draws, retainage, and expected reimbursement dates.
4. Keep FF&E, packages, signage, deposits, and the franchise fee outside the allowance unless the lease names them.
5. Align rent commencement with the build, so free rent is not consumed while waiting for a reimbursement.
6. Ask recent franchisees how much TI they actually collected and when, as the FTC’s FDD walkthrough recommends for opening-cost evidence.

Allowance versus landlord work versus free rent

Landlord work is not TI. If the landlord delivers a shaft, a restroom core, and HVAC, that is a delivered condition, and GDK’s $0 leasehold low is the Item 7 shape of that assumption. If the landlord instead writes a check, that is TI. If the landlord offers three months of free rent, that is occupancy timing. A listing that says “generous TI” may mean any of the three. The second-generation versus shell chapter tests the room; this chapter tests the check; rent tests the clock.

Free rent that runs during the build can fund occupancy but not the contractor. TI that reimburses after opening can fund the contractor later and not occupancy now. A buyer who nets both against Great Greek’s $650,000 leasehold high will count the same relief twice if the lease actually offers only one of them. Write landlord work, TI amount, TI mechanics, and free rent as four lines on the worksheet.

Personal guaranties sometimes expand when TI is large, because the landlord is advancing construction capital. That is not an Item 7 row. It is a liability next to GDK’s $30,000 fee and Mad for Chicken’s $35,000 fee. Counsel who read the franchise agreement should also read the guaranty that arrived with the TI exhibit.

The second-generation versus shell chapter decides what work exists. This chapter decides who funds it, and when the money arrives. Item 7 states the franchisor’s construction estimate. The lease states the allowance. They are not the same document.