Most landlords of commercial premises will wish to exercise some level of control over works carried out to their property in order to protect their investment. They therefore impose restrictions on alterations by tenants and there are a number of things tenants need to think about if they wish to alter a property:
1. Does your lease permit alterations?
Check the alterations clause in your lease. Leases will often distinguish between structural and non-structural alterations, with some alterations being prohibited altogether, some permitted with the landlord’s consent (which is usually not to be unreasonably withheld or delayed), and some permitted without the landlord’s consent. Whether alterations are permitted usually depends on the nature of the premises and, if the lease is silent on alterations, you are generally free to carry out any alterations you choose.
2. Are there any other restrictions in your lease?
You will also need to consider other provisions in the lease, for example:
- User – if the proposed works are intending to change how the property is used you will need to check that this new use falls within the permitted use of the property as set out in the lease.
- Laws and regulations – your lease will likely require you to comply with any laws and regulations relating to works such as planning and construction laws. These must be complied with irrespective of whether it is required by the lease.
- Planning permission – the lease may restrict your ability to apply for planning permission in respect of the property or require the landlord’s consent for any planning applications.
- Environmental – it is now common for leases to prohibit any works which may adversely affect the environmental performance of the property.
3. Obtaining consent from the landlord
If the lease requires the landlord’s consent to the proposed alterations, you will need to formally apply for such consent in accordance with the lease, which will often involve submitting plans and specifications for the works to the landlord.
Depending on the extent of the works, a landlord will usually provide consent by preparing a licence for alterations which will often include conditions on carrying out the alterations. It is likely that the lease will require you to pay the landlord’s costs and expenses in relation to the consideration of the works and the preparation and negotiation of the licence for alterations. This will be on top of your own legal fees if you choose to appoint a solicitor to act for you in respect of the licence.
If the landlord’s consent is not required for the works, you may still be required under the lease to provide the landlord with plans and specifications once the works are completed.
4. Insurance obligations
Commercial properties are generally insured by the landlord and the terms of the policy will likely require that any works to the property are notified to the insurer. The licence for alterations usually requires the tenant to notify the insurer of the works and obtain their consent to the works. You may also need to notify the insurer once the works are commenced.
5. Neighbouring property
Where the works require access to any neighbouring property or common parts of a building in order to carry them out, you should consider whether your lease grants you rights of access over these parts and any conditions on such access and any obligation to make good damage caused.
6. Do the works affect property outside of your demise?
You should consider the property definition in your lease to determine if your proposed works affect property outside of your demise, such as the common parts or parts demised to another tenant. In such circumstances, it is important to ensure that you are granted the necessary rights for you to install such equipment, as well as rights to repair and maintain it throughout the remainder of the lease term.
7. The impact of alterations on rent review
If the rent payable under the lease is subject to a rent review, you will need to check whether any increase in rental value attributable to the tenant’s alterations is disregarded when ascertaining the new rent. From a tenant’s perspective, you do not want to pay for works and then be required to pay an increased rent based on the improvements made by the works to the property.
8. Reinstatement at the end of the term
If alterations are permitted, your lease or licence for alterations may require you to reinstate all or some of these alterations prior to the end of the contractual term. The general position will usually be either:
- You are required to reinstate the alterations unless the landlord tells you otherwise or
- You are not required to reinstate the alterations unless the landlord asks you to do so.
It is important to consider the reinstatement of alterations well in advance of the end of the lease term. If you are taking an assignment of a lease, it is also important to understand exactly what works were carried out by previous tenants and whether you will be obliged to reinstate such works at the end of the term.