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Time for a Change - Tenant's Alterations in Commercial Leases

It is common for tenants of commercial properties to wish to make physical alterations to a property during the term of their lease, to adapt the property to fit the tenant's way of working and to ensure that the property continues to meet the operational needs of their business.

If the tenant's lease of a property contains no restrictions on alterations, then the tenant would be free to make any alterations that they wish to a property without having to obtain the consent of the landlord. This would be unusual, as for obvious reasons a landlord is likely to wish to impose some restrictions on the alterations that a tenant may carry out, so that the landlord has a degree of control over how their property may be altered. There is a balance to be struck between the competing needs of the parties here, which should be reflected in the lease document, so that both landlord and tenant are aware of (and comfortable with) what type of alterations a tenant may make to a property together with if and how those works require the prior consent of the landlord.

The terms of the lease that restrict tenant's alterations may be classed as:

Absolute - which means that the tenant is not permitted to carry out any alterations to the property at all. It would be unusual for a substantial lease of a large premise to contain an absolute restriction against any alterations. This type of restriction may be more appropriate in, say, a short-term lease of a serviced office as opposed to a longer term lease of a factory or warehouse building.

Qualified - which means that the tenant would require the prior consent of the landlord before carrying out alterations (and the lease would usually provide that the landlord should not unreasonably withhold or delay such consent).

Or a combination of the above. For example, a lease may contain absolute restrictions against structural alterations to the property, but provide for qualified consent for internal, non-structural alterations (and may even permit very minor works, such as partitioning, without any need for landlord's consent, but just an obligation to notify the landlord that such has been done).

It should be noted that where qualified consent requires that the landlord should not unreasonably withhold or delay such consent, the landlord should be expected to make the decision quite quickly (days, or perhaps weeks for more complex works, but the tenant should not be waiting for months). If a landlord is to refuse consent, it should be on the basis that any reasonable landlord would refuse consent in the circumstances (e.g., concerns that the works may threaten the structural integrity of the property).

If a tenant believes that a landlord has unreasonably withheld or delayed consent in these circumstances it may apply to Court for a declaration that the landlord has acted unreasonably before carrying out the works (by far the safest option!), or just undertake the works without consent on the basis that the tenant is confident that the landlord has acted unreasonably (though the landlord may look to take action, such as forfeiture of the lease or an injunction to stop the works, and the risk to the tenant here is that the Court agrees with the landlord).

Where a landlord's consent to alterations is given, this would usually be documented in a formal Licence for Alterations deed, which would often cover matters such as how the works should be carried out, obligations for re-instatement and how the works should be treated on any rent review. As a tenant's lease would usually provide that a tenant should reinstate alterations that it makes to a property prior to the end of the term, if a tenant intends to make alterations to a property that it does not expect to reinstate, this should ideally be negotiated and agreed prior to the completion of the lease, if possible.

For more information contact Richard Clithero in our Commercial Property department via email or phone on 0333 207 1159. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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