During the term of a lease, most tenants will at some point, want to make changes to their property. This could be a full shop fit-out Altering and Improving your Business Premises - Morrlaw at the start of a lease or minor improvements as the lease continues. Most commercial leases will require a tenant to obtain consent from the landlord before making any changes to the property. So the first step, for a tenant wishing to carry out works, is to check what the lease actually permits.
Absolute Covenants
An absolute covenant prevents the tenant from making any changes to the property at all. This means, if a tenant applies for consent to make alterations, the landlord can refuse to give its consent and does not need to give any reasons for the refusal. It is common to see this type of restriction on structural and external alterations.
Qualified Covenants
This is where alterations may only be carried out with the landlord’s consent. However, if the proposed works amount to ‘improvements’, by law, the landlord is unable to unreasonably withhold its consent to such works. Improvements include all works which may increase the value or usefulness of the property to the tenant, even if that means diminishing the value to the landlord.
That said, if a court is required to consider whether a landlord has unreasonably withheld its consent to alterations, it will consider a number of factors including the aesthetic, sentimental, artistic and historical value of the building.
Conditions
The landlord is likely to impose a number of conditions on the tenant before considering whether to give its consent to the works. These may include requirements to:The landlord is likely to impose a number of conditions on the tenant before considering whether to give its consent to the works. These may include requirements to:
- Pay all legal and surveyor costs (whether or not the consent is given).- Reinstate the property at the end of the term.- Pay for any damage or diminution in the value of the property or any adjoining land owned by the landlord.
If the landlord gives its consent, this will need to be documented in a licence to alter. The purpose of this licence is to record all works that are being carried out to protect both the landlord’s and the tenant’s interests. Whilst landlords will want a certain level of control over the works being carried out, this needs to be balanced against a tenant’s desire for flexibility. The licence is likely to document matters such as:
- The works to be carried out;- The timeframe for commencement and completion of the works;- Any requirements the tenant must comply with before, during and after the works have been completed. For example to comply with Construction (Design and Management) Regulations 2007 or the specific materials that should be used. - The landlord’s right to inspect the works during and after they have been completed.- How the works will be treated on rent review.- How the works are treated at the end of the term.
A breach of any of the licence or proceeding with works without the landlord’s consent, could lead to the landlord requesting for reinstatement of the property, compensation for any losses and forfeiture of the lease.
Tenants looking to carry out alterations or improvements to their property should take the advice of a specialist commercial property solicitor to find out the best way to proceed. To discuss this further or any other commercial property requirements, please contact the Commercial Property Team on 020 8943 1441. For more information please visit our Commercial Property page.