A tenant improvement (TI) allowance is the landlord's contribution to your build-out, quoted per square foot. On a 2,500 sq ft suite at the Alithos model's $170 per sq ft, construction is $425,000, so every $10 per sq ft of TI is $25,000 off what you fund. Published ranges run from roughly $40 to $100 or more per sq ft and vary widely by market. Negotiate it in the LOI, against rent, free months and term, before you sign.
What is a TI allowance?
A tenant improvement allowance is money the landlord agrees, in the lease, to put toward building out your suite. It is usually quoted in dollars per square foot and paid against the cost of walls, plumbing, electrical, HVAC, ceilings and finishes. The rules for how it is spent and paid live in an exhibit called the work letter.
It is not a gift. A landlord who funds your build-out is investing in the rent you will pay over the term, and prices the allowance against that rent. That is why TI is never a stand-alone number. It is one line in a trade that also includes base rent, escalations, free rent and the length of the lease.
For a dentist, the allowance matters more than it does for most office tenants. A dental suite needs water and drains at every operatory, vacuum and air lines, heavier electrical, and often shielding for imaging. That makes the build-out expensive. It also makes you a tenant who is costly to replace and unlikely to leave early, because you have so much in the walls. A good broker uses that.
How much TI can you get for a dental office?
I am not aware of any primary survey of dental TI allowances. The ranges you will see published are from contractors, brokers and accountants. One contractor's 2026 figures for medical and dental tenants run from roughly $40 to $100 or more per square foot, and the spread is the point: it varies widely by market, building and term [1]. Treat any range as a starting point for your broker's local comps, not as a target.
Four things drive where your offer lands:
- The market. JLL reports U.S. medical office occupancy hit a record 92.7% in Q4 2025, with national average rents in the mid-$20s per square foot per year and new developments leasing above $40 [2]. Fewer empty suites usually means landlords concede less. A local market with vacancy can look very different.
- The suite's condition. A cold shell needs more work than a second-generation medical or dental suite, so the allowance and the build-out cost move together. Compare the gap, not the allowance alone.
- The term. A landlord can justify more money over ten years of rent than over five. Longer terms usually buy bigger allowances.
- Your credit. A startup with a strong lender commitment and a solid business plan looks less risky than one without.
The number that matters is your gap: build-out cost minus allowance. At the Alithos model's $170 per square foot lease rate, a 2,500 sq ft, 5-operatory suite is $425,000 of construction [3]. A $40 allowance covers $100,000 of that and an $80 allowance covers $200,000. That $100,000 difference is money you would otherwise borrow. At the estimator's planning rate of 8.25% over 15 years, each $25,000 borrowed is about $243 a month. Run your own suite in the TI allowance calculator, and see the full cost of a leased build-out in the dental office build-out cost guide.
Straight TI vs. amortized TI: which is better?
Straight TI is the allowance priced into the base rent. You don't repay it separately. Amortized TI is extra money on top, which the landlord adds back to your rent with interest over a set term. Amortized TI is a loan inside your lease, and it should be compared with a loan.
A quick translation helps. Using an example rate of 9% over 10 years (ask for your landlord's actual rate), every $10 per sq ft of amortized TI on 2,500 sq ft is $25,000 that comes back as about $317 a month. That is roughly $1.52 per square foot per year added to rent, and about $38,000 repaid over the term. The same $25,000 from a bank at the estimator's 8.25% over 15 years is about $243 a month.
Now put three offers side by side. These are example inputs on the same 2,500 sq ft suite, not market terms. Rent is held flat for ten years to keep the math readable; real leases escalate.
| Ten-year example | Offer A | Offer B | Offer C |
|---|---|---|---|
| Base rent ($/sq ft/yr) | $26 | $28 | $26 |
| Straight TI | $40/sq ft ($100,000) | $60/sq ft ($150,000) | $40/sq ft ($100,000) |
| Amortized TI | None | None | $50,000 at 9%, 10 yr ($633/mo) |
| Free rent | 4 months ($21,667) | None | 4 months ($21,667) |
| Total rent over 10 years | $628,333 | $700,000 | $704,339 |
| Construction you fund ($425,000 less TI) | $325,000 | $275,000 | $275,000 |
| Rent paid minus TI received | $528,333 | $550,000 | $554,339 |
| Interest on the extra $50,000 you borrow from a bank (8.25%, 15 yr) | $37,313 | None | None (already in rent) |
| Net cost, all in | $565,646 | $550,000 | $554,339 |
On paper Offer A is cheapest. But it leaves you borrowing $50,000 more than B or C. At 8.25% over 15 years that is about $485 a month and about $37,300 of interest over the life of the loan, which more than erases its $21,667 head start. That makes A the most expensive offer all in. Offer B costs more in rent and less in debt, and comes out cheapest. Offer C funds the same construction as B, but its $50,000 landlord loan costs about $26,000 in interest, so it lands between the two.
So neither structure is better in general. Amortized TI makes sense when your lender caps the project, when cash is tight at opening, or when the landlord's rate beats your bank's. It makes less sense when the add-on escalates with base rent, or when the lease says the unpaid balance comes due if you leave early or sell. In Offer C, about $30,500 of the $50,000 is still owed after five years. Find out what happens to it.
What is a work letter?
The work letter is the lease exhibit that says who builds what, who pays, and how the allowance is spent and released. It matters as much as the allowance figure, because it decides how far that figure goes.
| Term | What it means | What to check |
|---|---|---|
| Landlord's work | What the landlord builds or repairs at its own cost before handing over the space | Base-building items (code-compliant restrooms, HVAC to the suite, electrical service, roof) listed in writing, not charged to your allowance |
| Tenant's work | Your build-out, designed and built by your team, paid partly by the allowance | Landlord approval of plans and contractors, and how long approval takes |
| Turnkey | The landlord builds your suite to an agreed plan | Who controls the design, the contractor and change orders; dental-specific scope spelled out |
| Eligible costs | What the allowance may pay for | Plumbing, electrical, HVAC, cabinetry, design, engineering and permits included; any soft-cost cap |
| Disbursement | How and when the money is paid | Progress draws or one payment at the end, required paperwork, payment deadline |
Disbursement is where startups get squeezed. Many allowances are reimbursements, paid only after work is complete and the paperwork is in: paid invoices, lien waivers from the contractor and major subcontractors, a certificate of occupancy, sometimes proof you have opened. Until then, your construction loan or your cash pays the contractor. Ask for progress draws as phases finish, and ask your lender how it bridges a TI reimbursement.
Which lease clauses claw TI back?
A big allowance can shrink after signing without anyone renegotiating it. These are the clauses that do it. Every one is negotiable before signature and nearly immovable after.
- Narrow "improvement" definitions that exclude mechanical, plumbing and cabinetry, the most expensive parts of a dental build.
- Draw conditions that pay TI only after completion, forcing you to float the whole construction cost.
- Restoration clauses that require you to remove improvements at lease end. Tearing out plumbing, casework and shielding is real demolition, one of the hidden costs worth pricing early.
- Recapture on early exit, where unamortized TI comes due at full value if you default, leave or sell.
- Claim deadlines that forfeit any allowance not requested by a set date, which a permit delay can make you miss.
- Landlord fees for supervising your construction, taken out of your allowance.
- Unused allowance that simply disappears, instead of being credited against rent or other costs.
Your attorney reviews these terms. This page is general education, not legal advice. For the rest of the lease, from escalations to assignment on sale, see the dental office real estate guide.
Can a TI allowance pay for equipment or cabinetry?
Usually not for equipment. Allowances are written for permanent improvements to the space. Chairs, delivery units, sterilization equipment and imaging are movable property you own and take with you, so most work letters exclude them.
The rough-ins are a different question. The plumbing, electrical, vacuum and air lines that serve your equipment are part of the building, and many work letters let the allowance pay for them. Built-in cabinetry is often eligible too, if it is permanently attached, though some leases treat casework as tenant property. The Alithos estimator models cabinetry at 10% of construction, or $42,500 on the 2,500 sq ft example, so whether it counts is worth asking in writing.
Check three things in the eligible-cost definition: equipment rough-ins, cabinetry, and design and permit fees. If the answer is "no" to all three, the allowance is smaller than it looks. Equipment budgets are covered in the dental equipment cost guide.
How is a TI allowance treated for taxes?
This is general education based on the 2025 IRS and FTB guidance cited below, not tax advice. I am not a CPA. Confirm how your allowance and improvements are treated with your CPA before you sign.
The tax treatment turns mostly on who owns the improvements. If the landlord owns them, the landlord generally depreciates them. If you own them and receive cash from the landlord, the allowance may be income to you unless an exception applies.
One federal exception is narrow. Section 110 of the Internal Revenue Code excludes a qualified construction allowance from a tenant's income when it comes under a lease of 15 years or less for retail space and is spent on improvements that revert to the landlord [4]. Whether a dental suite and your lease fit that definition is a question for your CPA.
Improvements you pay for yourself are depreciated. IRS Publication 946 explains how, including qualified improvement property (interior improvements to nonresidential buildings) and the election to treat it as Section 179 property [5]. States can differ. California, where I'm based, limits Section 179 to $25,000 and does not follow federal bonus depreciation [6]. Who owns what is set by the lease, so your CPA should see the draft before it is final.
How do you sequence a TI negotiation?
Leverage belongs to whoever isn't out of time. I recommend starting the space search at least a year before you need keys, so you can walk away from a weak offer. Then work in this order:
- Price the build-out first. Know your construction cost and total project before you tour. The Alithos cost estimator gives a first pass.
- Decide lease, condo or build. Make sure leasing is the right path for your numbers. Build, lease or condo walks through the comparison.
- Shortlist at least two suites. A real second option is the strongest thing you bring to the table.
- Ask for the whole package in the LOI. Allowance per square foot, eligible costs, disbursement schedule, free rent during build-out, any amortized TI offer and its rate, and the landlord's work.
- Compare offers over the full term. Rent paid minus TI received, plus the interest on what you borrow, as in the table above.
- Have your attorney review the LOI and lease. Especially the work letter, restoration and recapture terms.
- Confirm the timing with your lender. Who pays the contractor between draws and reimbursement.
If you are relocating an existing practice, the same steps apply with one more constraint: your current lease end date. The guide to relocating a dental practice covers that timeline.
I am not a real estate broker or an attorney, and I don't negotiate leases on your behalf. What I do is build the budget that tells you what the allowance has to be for the deal to work, so your broker and attorney negotiate against a number you trust. That analysis, including build vs. lease vs. condo projections, is part of the Budget Plan ($7,500 to $10,000, flat fee, scope in writing).
TI allowance FAQ
What is a good TI allowance for a dental office?
One that closes enough of your build-out gap for the whole deal to work at a rent your practice can carry. Published ranges for medical and dental tenants run from roughly $40 to $100 or more per square foot and vary widely by market, term and building. Price your build-out first, then judge the offer against it.
Is a TI allowance free money?
No. The landlord recovers it through base rent, a longer term, fewer concessions elsewhere, or an amortized add-on with interest. Compare whole offers over the full term, not the allowance figure alone.
What is the difference between a TI allowance and amortized TI?
A straight TI allowance is priced into the base rent and is not repaid separately. Amortized TI is extra money the landlord advances and you repay through a rent add-on with interest over a set term. It is a loan inside your lease, so compare its rate and early-exit terms with a bank loan.
When is the TI allowance paid out?
When the work letter says. Many allowances are reimbursements paid after work is complete and paperwork such as paid invoices, lien waivers and a certificate of occupancy is delivered. Ask for progress draws and plan construction financing or cash for the gap.
Can a TI allowance cover dental equipment?
Usually not. Chairs, delivery units and imaging are movable equipment you own. Many work letters do allow the plumbing, electrical, vacuum and air rough-ins for equipment, and some allow built-in cabinetry. Read the eligible-cost definition before you count on it.
What is a work letter?
The work letter is the lease exhibit that sets out the landlord's work, the tenant's work, what the allowance can pay for, and how and when it is paid. Your attorney should review it with the lease.
Have a lease offer and want to know if the allowance is enough? Run the gap in the TI allowance calculator, then book a free Project Fit Call before you sign the LOI.
Sources
- Terrapin Construction Group, "Medical Office Tenant Improvement Cost Per Square Foot" (2026). Contractor-published ranges, not a survey. terrapincg.com
- JLL, "Medical outpatient buildings ready for active 2026 despite policy headwinds" (2026). jll.com
- Alithos Advisory, cost benchmark and estimator assumptions (2026). Planning assumptions, not survey data or a quote. alithos.co
- Legal Information Institute, Cornell Law School, 26 U.S. Code § 110, "Qualified lessee construction allowances for short-term leases" (accessed 2026). law.cornell.edu
- Internal Revenue Service, Publication 946, "How to Depreciate Property" (2025). irs.gov
- California Franchise Tax Board, 2025 Instructions for Form FTB 3885A (2025). ftb.ca.gov
Every figure on this page comes from a cited source or is labeled as an Alithos planning assumption or example input. How we research and update this page.