How to use the tenant improvement allowance amortization calculator
- Enter the allowance the landlord provides and the lease term in months.
- Enter the interest rate agreed for repaying it, or 0 for none.
- Optionally enter the leased area to see the cost per square foot.
- Read the added monthly rent and the yearly schedule of interest and principal.
Formula
i = annual rate / 12
Payment = allowance x i / (1 - (1 + i)^-months)
With a 0% rate, payment = allowance / months
Per square foot = payment / area, and times 12 for a year
Payments are made at the end of each month. The interest is the total paid back less the allowance.
A $50,000 allowance over five years
The landlord provides $50,000 and the tenant repays it over 60 months at 8% a year. The monthly rate is 0.6667%, so the payment is $1,013.82.
Over the term the tenant repays $60,829.18, which includes $10,829.18 of interest. For a 2,500 square foot space that is $0.4055 per square foot per month, or $4.8663 per square foot per year.
How an allowance becomes rent
A tenant improvement allowance is money the landlord pays toward building out the space. The landlord usually recovers it through the rent, so the rent for a lease with a large allowance is higher than for the same space with none. Amortizing it at a stated rate shows how much extra rent it represents per month and per square foot, which lets you compare it with a lease that has a lower allowance and a lower rent.
The rate is the key assumption. A landlord may use its own cost of money, a market rate or a number built into the base rent. Try several rates to see how sensitive the added rent is.
Questions to ask
Is the allowance repaid through the rent, or is it a concession the landlord has already priced into the base rent? Does it have to be repaid if the tenant leaves early? Is the rate stated? The answers change how to read the result here.
The yearly table shows how the balance falls. In the first years most of each payment is interest, and the principal share grows. If a lease ends early, the unpaid balance is the amount a landlord may seek to recover.
Assumptions and limits
- The payment is level and made at the end of each month. Terms are in whole months from 1 to 600.
- The rate is a nominal annual rate compounded monthly.
- Taxes, operating costs and rent escalations are not included.
- The figures are examples. Nothing is uploaded.
Frequently asked questions
Is this the rent I will pay?
No. It is the extra rent that repays the allowance if it is amortized this way. Your base rent and other charges come on top.
What rate should I use?
Use the rate in the lease or offer. If none is stated, try a few values and compare the results.
Why is per square foot optional?
The payment does not need the area. Enter it only if you want the cost per square foot.
What happens at 0%?
The allowance is simply divided by the number of months.