Negotiating Improvements
Legal Counsel for Better Terms
Ensure favorable terms in your property improvement negotiations with expert legal advice tailored to your needs.
THINGS TO THINK ABOUT FOR SMALL BUSINESS OWNERS: NEGOTIATING LEASEHOLD IMPROVEMENTS
When leasing space, business owners should pay close attention to terms when negotiating improvements to make sure their operational needs are satisfied, and their investments are protected. Key terms to look for include who covers which costs, responsibility for permitting and approval processes, changes in lease terms, and potential impacts on future flexibility for use of the space and lease renewals. Clear agreements can prevent disputes and maximize long-term benefits. It can also be important to clarify what happens to these improvements at the end of the lease, such as whether they must be removed, restored to the original condition, or if they become the landlord’s property.
Improvements and Construction
These are significant modifications to rental properties that become permanent parts of the structure. They can be visible, such as altering the floor plan, or hidden, like upgrades to utilities. Examples include expanding electrical service, replacing pipes or wiring, or installing telecommunications infrastructure. In the case of telecom, third parties often lease rooftop space to install antennas, making it a common example of such modifications. While many of these improvements are valuable to both landlords and tenants, each property is different and should be approached on a case-by-case basis.
Is Landlord Approval Required?
Tenants who know they will need to make significant improvements should raise this point proactively during the lease negotiation process. But, even if this is not possible, tenants must still check to see if the landlord’s written consent for specific modifications is required—It almost always is. From there, the terms for improvements should be clearly defined as part of the consent process including who is responsible for costs and potential delays and ensuring any changes do not disrupt business operations for the landlord, or other tenants. Proper planning and communication can help prevent disputes and create a smooth transition for any necessary improvements.
Who Pays for Improvements?
Permanent modifications stay with the building. These changes can make the property more attractive to future tenants, increasing its value for the landlord. As a result, landlords may be willing to share in the costs or help with the build-out. Conversely, if the improvements were of a kind not likely to be attractive to future tenants, the landlord may go to the other extreme demanding the property be restored to its original condition at the tenant’s expense when the lease ends. Sometimes landlords may also seek to establish security interest in, and/or financing terms for, the improvements.
Who Owns the Modifications?
Ownership of permanent building modifications typically remains with the property owner, with little room for dispute. However, tenants may sometimes receive credit for expenses related to these improvements. Tenants expecting any sort of credit or concession should ensure the terms for it are clearly spelled out in the lease, or an improvement-related addendum.
Personal Property vs. Fixtures vs. Trade Fixtures
For non-permanent improvements, there are three primary legal classifications:
Personal Property
Personal property includes movable items like inventory, furniture, and equipment. Tenants own these things and can remove them without damaging the property. If left after the lease ends, personal property may be considered abandoned, with removal costs charged to the tenant.
Fixtures
Fixtures are personal property that becomes part of the real estate when attached, usually permanently. Examples include built-in cabinets, plumbing, and electrical systems, which typically belong to the landlord once installed. Some items, like appliances, are more difficult to classify. Landlords may require restoring fixtures to their original condition. If upgrading fixtures or unsure about certain items (e.g., solar panels, appliances, security cameras, etc.), tenants should discuss and document terms with the landlord in advance.
Trade Fixtures
Trade fixtures are business-specific fixtures that, if installed by a tenant, usually remain the property of the tenant and may be removed at the end of their leases. Examples include display shelves, specialized lighting, and business equipment (machining status, dentist chairs, kitchens, etc.). Since the distinction from regular fixtures can be unclear, keeping records and confirming terms with the landlord in writing is essential.
Who is Liable for What?
Responsibilities for improvements can vary widely, including purchasing, installation, ownership, and maintenance, and these responsibilities aren’t always linked. For instance, a landlord might buy and install a new HVAC system, but the tenant could be responsible for its operation and maintenance. Alternatively, a landlord might provide funds for improvements that remain the landlord’s property and responsibility. As a tenant, it pays to never assume anything with respect to improvements. When in doubt, clearly outline and agree on the full lifecycle of improvement in writing within the lease, or an addendum.
Disclaimer
This article is provided for informational, educational, and marketing purposes only and does not constitute legal advice. The content is current as of its publication or last review and may not reflect the latest legal developments. Do not rely solely on this information—consult a qualified attorney regarding your specific situation.
Get Legal Help for Planning Your Improvements
At Cascade Counsel, we recognize the importance of securing favorable terms for your business regarding property improvements and modifications. Navigating these complexities can be challenging, especially when you’re focused on business growth. We’re here to ensure your investments in improvements are protected and clearly defined in your lease agreement. Don’t leave these crucial details to chance. Schedule a consultation today to safeguard your investments in your rented space.
