Key factors for landlords to consider when granting consent to alterations
As a landlord, you may be asked to grant consent to alterations by your tenant. When considering whether to grant consent, it’s important to understand exactly what alterations the tenant wishes to carry out and what the works will mean to the rights and remedies available to you when the tenant vacates the property.
It’s important to Balance Objectives
From the tenant’s point of view, it requires flexibility to carry out its business including carrying out required alterations to the property to aid or improve its business. However, standard commercial leases usually include tenant covenants restricting alterations to the property. Commonly, alterations to the exterior and the structure of the property are prohibited and non-structural alterations to the interior are allowed subject to gaining landlord's consent, which is not to be ‘unreasonably withheld’. Meaning the landlord cannot withhold consent arbitrarily or without valid reason.
In other words, as the landlord, you are obligated to act reasonably when considering the tenant's requests for consent. This terminology is intended to prevent you from unreasonably withholding consent, which could potentially hinder the tenant's rights and obligations under the lease.
From your point of view as the Landlord, control over alterations is essential. A reasonably tight control ensures that the tenant cannot damage your property, so as to maintain the value of your investment. It also ensures that the tenant cannot interfere with supplies of services such as electricity, gas and water without your involvement. It will also safeguard that the external appearance of the property remains attractive, which is particularly important with terraces of buildings and shop units.
It is very important to note however, that The RICS Professional Statement: Code for Leasing Business Premises recommends that:
A landlord’s control over alterations should be no more restrictive than necessary to protect the value of the landlord’s property.
Internal non-structural alterations should be permitted without any requirement for landlord’s consent, unless there will be an impact on services and systems in the wider building.
Key factors to consider
When considering whether to grant consent, it is important to consider the following key factors:
Review Lease Agreement
Start by reviewing the current lease in place to understand the tenant’s right to carry out alterations. The lease may contain provisions restricting alterations, such as requiring the tenant to obtain landlord consent before making any changes. Or it may fall silent on the matter, meaning the tenant is able to carry out the works without the need for consent at all!
Scope of Alterations
Evaluate the scope of the tenant’s proposed alterations to determine whether they intend to make minor modifications or substantial changes to the property, that could affect the structural integrity or functionality of the property.
Legal Compliance
It is important you ensure that the proposed alterations comply with all applicable laws, regulations, building codes, and zoning requirements. This may include obtaining permits or approvals from local authorities and it is important to clarify who’s responsibility this will be, as it is likely you will want the tenant to be responsible.
Impact on Property Value and Functionality
One of the main factors to consider is how the proposed alterations may impact the value and functionality of the property. Will the works enhance the property, or will they potentially diminish its appeal to future tenants or buyers, leaving you in a difficult position when you come to re-let the property.
Insurance and Liability
Assess whether the proposed alterations could increase the risk of liability or affect insurance coverage for the property. Ensure that the tenant's insurance policy covers any potential risks associated with the alterations or that they understand the insurance rent will increase to cover the increase in the premium.
Cost and Responsibility
It is important to determine who will be responsible for the cost of the alterations. Is the tenant bearing the entire cost, or are they expecting you to contribute? It is important to clarify the responsibilities for maintenance and repairs related to the alterations at the outset.
Duration and Reversibility
Consider the duration of the alterations and whether they are reversible or permanent. Temporary alterations which may be removed at the end of the term may be more acceptable than permanent changes that could affect the property's future use.
Quality and Workmanship
Ensure that the proposed alterations will be completed to a high standard of quality and workmanship. Specify any requirements for using licensed contractors or skilled professionals.
Disruption to Other Tenants
Assess whether the alterations will cause disruption to other tenants in the building or to neighbours of the property. In order to minimise inconvenience, it may be necessary to restrict the work by scheduling construction during non-peak hours, completed within a certain timeframe and/or ensuring advance notice is provided to any affected parties.
It is important to carefully consider each of these factors and address any potential issues upfront, so that you can effectively manage the alterations to your property while protecting your interests and maintaining positive relationships with your Tenant.
Licence to Alterations
If you approve of the alterations and agree to grant consent, we strongly advise you enter into a Licence to alterations to ensure the proposed alterations and your conditions of consent are detailed in a formal agreement. A licence will ensure that both parties understand their rights and obligations, while providing a clear framework for managing the alterations and protecting each parties’ interests.
How can we help
We strongly recommend that both parties seek their own separate legal advice when negotiating a licence to alterations, to ensure it meets each of their specific needs and requirements. If you would like to speak to a member of our commercial property team regarding a licence to alterations, please contact us today.
