Who is Responsible for TI Allowance When a Property Sells
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[{"id": "hzyznt2", "text": "It\u2019s part of the negotiation but as a buyer I would expect to get a credit for the TI amount at closing.", "replies": [], "depth": 1}, {"id": "hzyzp5o", "text": "Read the PSA, typically new owner with a credit at closing.", "replies": [], "depth": 1}, {"id": "hzzac7i", "text": "The person that owns the property, that doesn't want to be sued for failing to keep the contract.", "replies": [], "depth": 1}, {"id": "hzzuk4y", "text": "New owner would want a credit so original owner/seller most likely. But it\u2019s always negotiable.", "replies": [], "depth": 1}, {"id": "i0022ar", "text": "If this isn't laid out in the PSA, you've got a problem.", "replies": [], "depth": 1}, {"id": "i006pfj", "text": "From a business standpoint the entire lease is presumably being purchased along with the building and land. If the allowance and improvements were part of this lease then they would become the responsibility of the new owner.", "replies": [{"id": "i009n4t", "text": "This is correct. \n\nThere isn\u2019t a credit to the buyer for the TI as they bought the asset with tenant in place, and will benefit from the tenancy deal (which pays for the TI on an amortized basis basically), and the new owner/LL also owns the improvements at the end of the lease. Unless there is some crappy negotiation or a real problem asset that needs shifted asap I don\u2019t see any seller crediting TI$ to buyer.", "replies": [], "depth": 2}, {"id": "i0226t8", "text": "Second this. Additionally, you must read the lease carefully. There are conditions for what the tenant must do to be reimbursed using the TI allowance. Most common condition, is that there is an expiration date on the allowance. If they don\u2019t do the improvements and fulfill all the conditions for reimbursement by that date, they typically lose it. Whoever owns the premises at the time of the tenant successfully completing the conditions for reimbursement of TI allowance, must pay per the lease, doesn\u2019t matter if it\u2019s the same owner who signed the lease or new owner who purchased after.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i00p2bx", "text": "Depends on the lease.  Lease might say LL is responsible for TI and some other things. \n\nThat\u2019s why it\u2019s important to read your leases before buying", "replies": [], "depth": 1}, {"id": "i0zzm6o", "text": "A few wrong answers here as it\u2019s is all dependable on the sale agreement - ie a seller can deduct the the TI from sale price, or credit the buyer, or alternatively the buyer takes on the Ti. It\u2019s all in the sale negotiation. \nIt is better for a seller to payout/deduct the ti and utilise the full face rental (disregard TI) and capitalise this figure. I.e \n$1m purchase price with a $100k ti is $900k income at 5% = $18m sale price \n$1m purchase price at 5% = $20m less the ti payout = $19.9m...\nSome commercial leases will state the landlord has the option to payout the incentive figure in full at any time during the lease.", "replies": [], "depth": 1}]