In order to keep up with the rapidly changing demands of business, it is common for a tenant to wish to make changes to the commercial property they are leasing at some point during the tenancy. The first port of call for a landlord or tenant in this scenario is to check what is detailed within the lease as ultimately the lease will either; permit alterations or improvements, prevent alterations or improvements, or be silent on the issue.
Where the lease permits alterations or improvements
Often where the lease permits alterations or improvements, it will qualify that permission by stating that any works must be done with the consent of the landlord; and in most cases establishes that this consent is “not to be unreasonably withheld”. The inclusion of this wording is not essential, as even where it is omitted the Landlord and Tenant Act 1927 (“the LTA 1927”) will imply its inclusion into the lease. If the landlord refuses to provide such consent then the tenant can apply to the court for a declaration that the consent is being unreasonably withheld and this will enable them to subsequently proceed with the works.
The question of what is unreasonable in this context is tricky as it depends on all of the circumstances and includes both subjective and objective elements, looking at the actual reason for the landlord refusing consent (subjective) and whether their refusal was reasonable on this basis (objective). Generally, it has been considered that the purpose of requiring consent is to protect the landlord from the tenant carrying out any works which would damage their property interests, and therefore they cannot refuse on any grounds which have nothing to do with their property interests; damage to property interests does not just mean a reduction in their property value, it also includes any aesthetic, artistic, historic or sentimental considerations. However, where the benefit to the landlord of withholding consent is disproportionate to the detriment of the tenant (i.e. it is of minor benefit to the landlord but greatly burdens the tenant), then it would be unreasonable to withhold consent.
Additionally, the landlord can require certain conditions for giving consent that will not be deemed unreasonable; the tenant can be required to pay for any reduction in value of the property or neighbouring property of the landlord, they could be asked to cover the cost of any legal or other expenses incurred in the landlord providing consent, or they may be required to reinstate the property to its original condition at the end of the term (but only where it is not an improvement which adds to the value of the property).
Even if the lease does not require the landlord’s consent, it may place obligations on the tenant to do certain things, i.e. to use good quality, new materials, to carry out the works in a good and workmanlike manner, making good any damage caused, or to notify insurers of the proposed works.
Where the lease prevents alterations or improvements
The LTA 1927 gives the tenant the right, in certain circumstances, to carry out alterations or improvements even where the lease does not allow it; and this right cannot be excluded from the lease.
Under section 3, the tenant can serve notice of the works on the landlord which does not need to be any particular form; however it must include a plan and specification which shows the improvements or alterations proposed and the part of the property that will be affected by them. It is fundamental that sufficient detail is included to allow the landlord to decide whether to consent to the works, to object to them, or to carry out the works themselves.
If the landlord objects to the work, then the tenant has the right to apply to the court for authorisation to carry them out and the court can only authorise this if they determine that; it is considered to add to the letting value of the property at the end of the tenancy, it is reasonable and suitable to the character of the property, and it will not diminish the value of any other property which belongs to the landlord or to any superior landlord.
If the landlord does not object to the works within three months, or if the court authorises the work, then the tenant may lawfully carry them out even if the lease prohibits the same.
Alternatively, the landlord could offer to carry out the work themselves in return for a reasonable rent increase. In this scenario, the tenant is not obliged to accept their offer and may withdraw its notice; and subsequently if it does so then the landlord has no right to carry out the works and increase the rent.
Once the works are completed the tenant should apply to the landlord for a certificate that the works have been duly executed; and if the landlord fails to provide this within one month (or refuses to give it) then the tenant can apply to the court for a certificate confirming the same.
Where the lease is silent on alterations or improvements
Whilst this is uncommon (as most leases will include restrictions against altering or improving the property), if the lease is silent then the tenant is free to carry out any work it chooses, so long as it does not cause waste (that means spoiling or destroying the property leased) and does not go beyond the boundaries of the property.
It is always important to ensure, as both landlord and tenant, that the lease is drafted to the satisfaction of both parties and adequately deals with matters such as the above. The tenant will want to ensure that they are not prevented from undertaking any future works that would assist in their business endeavours; and the landlord will want to protect their investment in the property and ensure its value does not decline.
If you need any Commercial Property advice contact our Specialist Team on 0800 088 6004.