Tenant’s Alterations And Lease Expiry

Tenants alterations and landlord consent

In a commercial leasehold property, there are usually restrictions and rights as to what alterations can be made to the property. These can be found in the lease. The purpose of this is to protect the landlord from any alterations made affecting the property interest. Tenants may wish to alter the property to fit in with their business needs, but these would have to be in line with the restrictions in the lease. It is rare for a lease not to contain these terms.

There are different types of restrictions as outlined below.

1. An absolute restriction means that the tenant must not carry out works to the property. It is rare that no alterations are allowed and in such instances it is usual for the tenant to need to obtain the landlord’s consent to any of these works. The tenant may ask the landlord for consent to the alterations; however, (unless otherwise specified in the lease) the landlord does not have to be reasonable in refusing consent. This is more common in short-term leases as it would be more unreasonable to withhold alterations in a long-term lease.
2. A qualified restriction is one which is drafted into the lease in line with section 19(2) of the Landlord and Tenant Act 1927. This states that consent from the landlord will be needed, but consent must not be unreasonably withheld, for example, when making improvements to the property. An improvement is seen from the tenant’s perspective as seen in the case of Lambert v Woolworth & Co [1938].

The principle of reasonableness in this context, may be seen as reasonable refusal or conditions to the alteration in this context. These conditions may impose that alterations are carried out in a specific way, making good of common areas as a result of the alteration works, or providing plans of the alterations to the landlord after their completion. The landlord may refuse consent based on, for example, structural damage, competition with the landlord’s own use or if the proposal does not fit with the local environment. These clauses must be drafted carefully.

The landlord’s consent will usually be provided by way of a Licence for Alterations, allowing the tenant to complete the works. It is also usual for the lease to confirm that, unless the landlord requests that the alterations remain, the tenant must remove any alterations when the term of the lease expires.

What happens when a commercial lease expires?

Part Two of the Landlord and Tenants Act 1954 gives rights to the tenant, such as security of tenure. This means that the tenant has a right to remain in the property after the expiry of the lease term until the relevant termination notice is served by the landlord. The tenant then has the option to ask the landlord for a new lease. The landlord may refuse the new lease on one of seven grounds (Section 30 (1) of the Landlord and Tenant Act 1954), for example, the tenant’s failure to keep the property in good repair, persistent delays in rent payments or that the landlord intends to use the property as their own.

It is common for landlords to contract out of this section of the act for several reasons. The landlord may have agreed to a tenant and lease terms that they find less desirable, there may be planned redevelopment in which the landlord wants the property back after a certain period or there may be subletting of different parts at different times which need to end at a certain time.

By contracting out of this, it makes the expiry more certain for the landlord at the end of the period as the tenant has no right to renewal or renegotiation of the lease. The tenant will have to leave unless the landlord proposes to renegotiate a new lease. The contracting out procedure (set out in the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003) must be strictly followed, otherwise a tenant may be able to dispute the validity of the process.