License for alterations – do I need one?

As a team, we’re regularly asked by tenants proposing to carry out work at their premises if they really need to document the plans. Often, the landlord has already told them that the works are approved, so the question is understandable.

However, there are good reasons why both parties should document the details, not least for tenants to protect their future interests should the landlord sell its freehold or the tenant want to assign the lease.

Of course, the landlord’s concern is to protect the value of their premises and prevent permanent alterations that would make it difficult to let the property in the future or require the landlord to remove them at their own cost. On the other hand, the tenant’s main concern is to configure the premises to suit its own business and, in the case of an assignment of the lease, to allow a new tenant to completely remodel the property.

It is therefore in the interest of both parties to enter into a licence for alterations documenting the works required by the tenant.

There are two main elements that should be included:

• the obligation for the tenant to reinstate the premises to its original state when the lease ends. This is key and needs to be carefully considered to ensure that the landlord can require the tenant to remove all alterations when the tenant’s lease expires, and that they are not considered “improvements” under the Landlord and Tenant Act 1927. If this is the case, the landlord would need to pay the tenant for the works. Also, for example, the landlord may not require certain items to be reinstated if he is happy for them to remain, as they may benefit an incoming tenant. The details of the lease should also be considered as to when reinstatement should occur and to check that this matches the provisions of the licence.
• when the lease includes an open market rent review, it’s important that the impact of the tenant’s alterations is disregarded. Obviously, it would be completely unfair if the works that the tenant had carried out and paid for, which may have improved the premises, increased the rental value.

Other provisions in the lease relating to alterations should also be considered. For example, general compliance with law, which requires all tenants’ works to comply with statutory provisions to include building regulations and planning requirements.

Furthermore, the works should comply with the building’s insurance requirements and, often, the insurer’s recommendations. The tenant should always check these before commencing work to ensure they are not in breach.

There are several other provisions in leases and many further details in any draft licence for alterations. These should be thoroughly considered by both landlords and tenants before any work begins, so if you are affected by this matter, please do not hesitate to get in touch.

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A Legal 500-recommended partner in our commercial property team, Alasdair advises on a wide range of real estate issues, including sales & acquisitions, development transactions, landlord & tenant and property management matters.