What Tenant Improvement Allowance Do Medical Tenants Expect?

Tenant improvement allowance is often the largest negotiating point in a medical lease. Clinic build-outs are more expensive than a standard office or retail fit-out: exam rooms with sinks, enhanced electrical, dedicated HVAC zones, accessible washrooms, and sometimes shielding for imaging all add up. Medical tenants know this, and they usually expect the landlord to share the cost. Understanding how that contribution is structured, and what drives the size of the ask, helps landlords make offers that win good tenants without taking on unnecessary risk.

This guide is written for landlords, but tenants will find it useful for understanding how the other side thinks.

Base Building vs Tenant Work

Every medical lease should spell out exactly who builds what. This is usually done through two schedules:

• Landlord's work covers the base building: the structure, the building envelope, a functioning HVAC unit, the electrical service to the unit, base washroom and plumbing connections, and compliance items the landlord is responsible for.
• Tenant's work covers everything specific to the tenant's operation: interior walls, exam rooms, millwork, clinical plumbing, specialized electrical, finishes, and equipment.

Disputes in medical build-outs often come from grey areas between these two lists. Is the HVAC upgrade needed for a clinic the landlord's job or the tenant's? Who pays to trench the slab for new plumbing? Who pays for accessibility upgrades to the entrance? Settle these in writing before the lease is signed, with drawings where possible.

Turnkey, Allowance, or Shell

There are three common ways to structure the landlord's contribution:

• Turnkey. The landlord builds the premises to an agreed plan and hands over finished space. The landlord controls the design, contractors, and schedule, but also carries the construction and cost overrun risk.
• Allowance. The landlord contributes an agreed amount toward the tenant's build-out, and the tenant manages construction. Anything over the allowance is the tenant's cost.
• Shell or as-is. The landlord delivers the space in its current condition or as a base building shell, with little or no contribution. This is more common where rent is lower or the space is already partly built.

Many medical deals blend these. A landlord might complete certain base building upgrades as landlord's work and then provide an allowance for the tenant's interior work.

What Drives the Ask

There is no standard TI number for medical space. The amount varies by market, building, and deal. The factors that move it most are:

• Lease term. A longer term gives the landlord more time to recover the investment, which justifies a larger contribution.
• Covenant. A tenant with strong financial statements, an established practice, or a corporate parent represents lower risk than a new practice with limited history.
• Condition of the space. A raw shell needs far more work than a unit with existing plumbing and partitions.
• Market vacancy. Where competing space is plentiful, tenants have more leverage and landlords tend to contribute more. Where space is tight, the reverse is true.
• Use. A dental office or a diagnostic clinic typically needs a heavier build-out than a counselling practice.

Amortizing TI Into Rent

A landlord's TI contribution is not free money. It is typically recovered through rent over the lease term, either within the base rent or as a separate additional rent charge that amortizes the amount at an agreed interest rate. Some tenants prefer a larger allowance with higher rent. Others would rather fund more of the build-out themselves in exchange for lower rent. Presenting both options lets the tenant choose the structure that fits its finances, and the landlord can compare the net effective return of each.

Fixturing and Free-Rent Periods

Medical tenants need time to build, get permits, install equipment, and in some cases meet regulatory requirements before they can see patients. A fixturing period gives them access to the premises before rent starts. Separately, some deals include a period of free or reduced rent after opening. Both are forms of landlord investment and should be weighed alongside the TI allowance, not in isolation. Length of fixturing depends on the scope of work and the permit timeline in your municipality.

Protecting the Landlord's Investment

Because medical build-outs are costly, landlords should protect their contribution carefully. Common tools include:

• Covenant review. Ask for financial statements, look at the practice's history, and understand who stands behind the tenant entity.
• Guarantees. A personal guarantee from the principal physician or dentist, or a corporate guarantee from a parent company, adds security behind a professional corporation tenant.
• Clawback provisions. Require repayment of the unamortized portion of the TI if the tenant defaults or terminates early.
• Staged payment. Pay the allowance in instalments against invoices, lien waivers, and proof of completed work, rather than up front.
• Restoration clauses. Decide which improvements stay at lease end and which must be removed. For medical space, you may want exam rooms and plumbing left in place.

Have your lawyer draft and review each of these provisions. The wording matters, and enforceability depends on the specific lease.

Why Second-Generation Medical Space Is Valuable

When a medical tenant leaves, the improvements left behind can be an asset. A unit with exam rooms, sinks, upgraded electrical, and accessible washrooms can often be re-leased to another healthcare tenant with a smaller build-out and faster move-in. That can lower the next TI contribution and shorten downtime. It is one of the reasons a well-negotiated restoration clause matters: removing a functioning clinic fit-out can destroy value you just paid for.

How PRAXIS Helps

PRAXIS Healthcare Real Estate represents landlords, owners, and developers leasing to healthcare tenants across Ontario and Alberta. If we work with both parties on the same deal, it is disclosed in writing upfront and handled as provincial rules require. We help landlords structure TI, fixturing, and protection terms that attract strong medical tenants while protecting the investment. Learn more about landlord representation or development and build-to-suit, and contact us to talk through a vacancy or an offer on the table.