UK: Alterations: Back To Basics

Last Updated: 27 July 2015
Article by Claire Haynes

The process of documenting tenant alterations is not always as straight forward as landlords and tenants would like. Here are the answers to the questions we are most frequently asked.

Why is landlord consent needed to carry out works to our premises? The works are only minor in nature.

Leases usually prohibit or restrict a tenant's right to make alterations so that the tenant does not carry out works which damage the landlord's interest in the premises. Long leases are likely to give tenants more freedom to carry out works, for example internal non-structural works may be permitted without consent. In contrast, a landlord is likely to want to approve any works a tenant occupying under a short lease (say for a term of 5 years) wishes to make, to ensure that the premises remain in good condition and both their rental value and the value of the landlord's reversion are protected.

We informed the landlord that we would like to carry out works to our premises a while ago but the landlord has not confirmed that we can proceed. Why is this?

A landlord will wish to formally document the works in a 'licence for alterations' which annexes approved plans and specifications and sets out the way in which the tenant is to carry out the works. It is usual for a landlord to ask its solicitor to prepare an initial draft of the licence for the parties to agree.

Often there are delays as tenants do not make the nature of the works that they wish to carry out sufficiently clear for the landlord's surveyor to review in order to give consent. A full pack of professionally drawn up plans and specifications detailing the works, including any relevant mechanical, electrical and structural information will be required by the landlord. It is for a tenant to show that a landlord has unreasonably withheld consent. Consequently, if a landlord does not have sufficient information relating to the works, a tenant is unlikely to be able to demonstrate that a landlord has been unreasonable in withholding consent.

Can a landlord unreasonably refuse consent to a tenant's application for consent to carry out alterations?

A lease will usually include a clause which expressly sets out what the tenant is permitted to do in respect of the carrying out of alterations to the premises. Additionally statute (the Landlord and Tenant Act 1927) dictates that where the tenant requires landlord's consent to carry out the works, if the proposed alterations are an improvement the landlord cannot unreasonably withhold consent. The courts have ruled that whether something is an improvement is interpreted from a tenant's perspective. Consequently, it is unlikely that a landlord will be able to withhold its consent unreasonably. If a landlord has not expressly agreed in the lease to act without delay, there is no implied requirement for a landlord to do so.

Where reasonable, a landlord may have to modify a prohibition on alterations so as to permit a tenant to carry out works required pursuant to statute, such as an alteration under the Disability Discrimination Act 2005.

A tenant has carried out alterations which improve the premises. Is a landlord required to pay compensation to the tenant?

Landlords are prohibited from contracting out of the provisions in the Landlord and Tenant Act 1927 which entitle a tenant to claim compensation for improvements at the end of the term. However, a reinstatement covenant has the effect of enabling a landlord to avoid paying compensation and so compensation is rarely paid by landlords. It is open to the parties to negotiate on this issue. If the works are significant they may allow a tenant to argue for a lower rent on review.

What happens if a tenant's alterations will negatively impact the energy efficiency rating of the premises?

We are increasingly seeing provisions in leases which provide that tenants are prohibited from carrying out works that adversely affect the energy efficiency rating of premises. If such a provision is included in the lease, and it is found to be reasonable, the tenant will not be permitted to carry out the works unless the landlord consents. If there are no such provisions in the lease, it is likely to be unreasonable for a landlord to refuse consent on these grounds.

Will the tenant's alterations have an impact on rent review of the premises?

Any impact on rent review should be agreed between the parties and expressly set out in the licence for alterations. It is usual for any works and improvements to the premises to be disregarded on rent review. However, if the works are carried out at the cost of the landlord or pursuant to an obligation to the landlord, this is a point for negotiation between the parties.

Is a tenant required to reinstate the works it has carried out to the premises at the end of the term?

A landlord will usually require an express obligation to be included in both a lease and licence for alterations requiring the tenant to reinstate the premises to their condition before the works were carried out, by the end of the term. There are situations where reinstatement might be regarded as an onerous obligation in light of the expense and significance of the works carried out by a tenant. In these circumstances there could be an impact upon rent review and it is for the parties to negotiate what is to happen.

[Note to publishers: Alterations to shop fronts - to be separately included in a feature box forming part of the article]

Alterations to shop fronts

Landlords sometimes distinguish alterations to shop fronts from alterations to the remainder of the premises. Some issues to watch out for:

  • Check whether the shop front is demised to the tenant or if the landlord is to retain ownership. A shop front of a retail unit in a shopping centre is likely to differ in form to a shop front of premises which face an outside street.
  • Works to shop fronts and signage usually require planning permission and building regulations approval.
  • National retailers like to be able to change the shop front fascia and signage without landlord consent if their corporate house style is re-branded. Some landlords are happy to agree to this whilst others prefer for the usual works approval process to take place.
  • Landlords usually require tenants to take out separate insurance cover for plate glass within shop fronts. As the costs of plate glass insurance can be prohibitive, some tenants prefer to negotiate a personal obligation to repair the glass and foot the bill for any damage.
  • Some landlords place restrictions on the amount of the glassed area of a shop front which is permitted to be obstructed by posters and promotions. Tenants often try and negotiate more favourable provisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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