WHAT IS TI/LC IN COMMERCIAL REAL ESTATE?
A tenant improvement (TI) refers to the improvements a commercial property owner makes to the interior of a rental space to suit the needs of a new tenant. This most specifically takes place in office and retail transactions, and not in multifamily loans.
Some examples of the alterations include changing the floors, walls, and ceilings. The lease agreement can also be comprised of changes, such as the lighting, air conditioning, and security. The cost of the improvements or changes may be borne by the property owner, the tenant, or both. This is determined during contract negotiation.
If a real estate broker or agent is successful at closing a lease agreement between a landlord and tenant, they will receive a leasing commission (LC). The LC is an amount paid by the owner of the property based on a percentage of the lease value.
For example, a tenant that signs a two-year lease for 4,000 square feet at $40 per square foot per year will have a lease value of $320,000 (4,000 sq. ft. * $40/sq. ft./year * 2). If the property owner is paying a 7% leasing commission, then the total commission that the real estate broker or agent will receive is $22,400 ($320,000 * 0.07).
Ultimately, the leasing commission will depend on various factors, such as the amount of the lease, the property type, and most importantly, what the property owner has negotiated with the agent or broker.