Small Business: Tenant Improvements and Required Permits

One of the most exciting things about opening a new business is fixing up your new store the way you'd like. Remodeling an existing store space is known as a "tenant improvement" (TI) and can involve anything from a simple recarpet & painting to moving walls, installing extra bathrooms or a commercial kitchen, to new lights and more.

Tenant Improvement costs are usually negotiated between the landlord and the business owner, with the landlord usually paying for the basic shell (known as the "white space") and the tenant paying for everything else. One cost that must also be negotiated for are the various permits required for the remodeling of the space.

Checklist of permits you may need

Our family owns a downtown commercial building that experienced a space conversion from a retail shop to a restaurant. While we anticipated the various building permits and fees that would be required with a TI, our tenant was caught a bit off-guard. Permits and fees can add thousands of dollars to the cost of a tenant improvement and must be budgeted for along with everything else.

Here's a brief rundown of the permits required for the TI in our building to give you some idea of what to expect as a new business owners remodeling vacant space. While most of these permits are "pulled" by the various contractors, they may require the building owner or tenant to pay the permit fees upfront.

Minor or Major Commercial Tenant Improvement Permit. The most basic of all commercial permits; a Commercial Tenant Improvement permit is required for any TI that involves structural changes in the building. In our city, the cost of these permits is equivalent to 1% of the total cost of the improvement.

Plumbing Permit. Whether you are installing bathrooms or a simple hand washing sink, a plumber permit will be needed before the work can be done.

Electrical Permit. This permit is required before any electrical work can be done in the tenant space, even if all you are doing is adding a few outlets or lights.

Impact fees. These fees are collected by either the city or county as a way to offset the cost of public services that may arise from a new development. While impact fees are usually associated with new buildings, a new use in an old building may also trigger an impact fee.

Signage Building permits. Building signs of all types and sizes also require a permit. The exception here is a vinyl or foil lettering on the door.

Demolition permit. While a tenant can remove existing floor covering and built-ins without permission from the city, tearing into walls, ceilings and staircases will require a demolition permit.

Fire alarm, fire sprinkler, and cooking hood fire extinguishing system are part of the Fire Review permits that may also be required. While the building owner is usually responsible for bringing the building up to fire code, the tenant may have to foot the bill for the permits required for a cooking hood extinguishing system.

Assembly permit. Allow issued by the Fire Department, this is required for any space that will hold more than 50 occupants.

Occupancy permit. This permit allows a tenant to open the doors for business, and are issued after all the tenant improvements have been finished and have been inspected by the city.

These are just a few of the permits that were required during our tenant improvement, but certainly aren't the only fees that a new business owner can expect. Other fees and permits a business owner will need include a business license, liquor or beer & wine license, and a license from the Health Department.

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