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Considerations In Leasehold Property Alterations

View profile for Andrew Beattie
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The question which is often asked by tenants is why they must obtain consent to carry out alterations to a leasehold property.  Ultimately the answer to this rests in the lease which will determine the relationship between the landlord and the tenant and the rights which the tenant has to carry out alterations to the property.   There are competing interests and points which need to be understood and in this article I will cover the different positions of the parties and the relevant legislation.

1.                  Landlord’s Position

The landlord will want to ensure that the value of his building is not diminished and that any alterations carried out by the tenant will not affect the structure or integrity of the building, or the stability or safety of the building.

The Landlord will also want to make sure that any works carried out to the property are carried out properly and do not act to void any warranties which the landlord has the benefit of.

2.                  The Tenant’s Position

The tenant will want to ensure that he can carry out necessary alterations in order to use the property in the way which suits his business best.  He will also probably want to carry out alterations in the most cost efficient way possible and he may also have reservations about reinstating any works which he undertakes to the property.

3.                  Different Lease Covenants Against Alterations

3.1               An absolute covenant -  a covenant which will be a covenant prohibiting all alterations.    

3.2               A qualified covenant - a covenant which prohibits alterations with the exception of certain alterations which are approved by the landlord.  

3.3              Silent lease -  if the lease is silent the tenant is free to carry out any alterations it wishes subject to the impact of the other covenants in the lease such as the repairing covenant and the obligation to comply with statutory provision.

4.                  Legislation

4.1               Section 19(2) of the Landlord and Tenant Act 1927.  

If the alterations covenant is qualified the consent of the landlord may not be reasonably withheld if the proposed alteration amounts to an improvement.   Whether an alteration amounts to an improvement will be judged from the point of view of the tenant. An “improvement” for the purposes of Section 19(2) may in fact damage the building or reduce its value to a landlord and hence it is important from the landlord’s point of view that the alterations provision in the lease is correctly drafted by an appropriately qualified solicitor.

4.2              Landlord and Tenant Act 1927 Section 3

Whether a covenant against alterations is absolute or qualified, a tenant of business premises may apply to the Court for authority to carry out improvements.  The procedure for this is laid down by Section 3.  The Court will only certify that an improvement is a proper improvement for the purposes of Section 3 of the Landlord & Tenant Act 1927 if it would add to the letting value of the holding at the end of the lease, it is reasonable and suited to the character of the property and will not diminish the value of any other property belonging to the same landlord or a superior landlord.

4.3              Statutory Obligations

There are statutory obligations relating to property which may require works to be carried out to the property such as fire precautions, health and safety, the disability discrimination act and all of these give the Court extensive powers to override or modify the obligations in leases to ensure compliance with such acts.

5.                  Tiers of Alterations

It is normal in modern practice to find that leases will provide for three separate tiers of alterations:-

  • An absolute prohibition against carrying out alterations relating to the structure or exterior of the property
  • Permission for the tenant to carry out alterations to internal demountable partitioning without any consent
  • A qualified covenant not to carry out other alterations without the landlord’s consent

6.                  Licence for Alterations

If the consent of the landlord is needed to carry out alterations the tenant must apply for a licence for alterations which will need to be carefully negotiated by an appropriately qualified solicitor.