When landlords let out commercial premises, they tend to prefer open–plan premises. Not only does this make the property look bigger, it allows prospective tenants to imagine how the space could work for them. That’s the theory anyway. In practice, open plan space doesn’t always provide the most suitable accommodation for running a business.
For example, you might need to create cellular offices, tea points, or even install that all-important million-pound machine that pumps out widgets. But in doing that to make the space fit your needs, are you creating problems for yourself down the line? Today, let’s talk about making alterations to commercial premises, and the issues it can cause.
Ultimately, whether you can or can’t make alterations to a commercial premises will depend on your landlord and what you have agreed with them. Your lease might allow you to make certain types of changes but not others. You might have to ask for permission as a condition of making alterations, or supply your landlord with revised plans once alterations have been made.
If you do need to ask your landlord for permission, they might also insist that you enter into a licence to alter. This can sometimes come with a big bill from a solicitor to document the change, as well as from a surveyor to inspect plans and complete the work.
As far as dilapidations are concerned, the alterations clause is the one with the widest variation, which is why you should never expect a ‘standard’ answer to what alterations you can make. If you aren’t sure what alterations are allowed you should always talk to a solicitor, or a very competent dilapidations specialist surveyor (like us). Changing a single word in an alterations clause can have a big impact on its meaning, and the devil really is in the detail.
Most of the time, making alterations isn’t the only big cost you’ll face – it’s taking them out too. Whenever you decide to make alterations to a commercial premises you should always budget for the work needed to remove the alterations and return the building to its original condition. This process is called reinstatement.
You may come across some surveyors using the words ‘alterations’ and ‘reinstatement’ clauses pretty interchangeably, but they are very different things, and can sometimes be in two different places in your lease, so it’s important you know the difference. Often a reinstatement clause will be wrapped up in the yield up clause, rather than the alterations clause, so check there too.
Just as with the alterations clause, the reinstatement clause can have a big variation in wording. Some leases might require you to remove all alterations without exception. Others might require the landlord to serve notice at a specific time for you to reinstate for a set date. We’ve even seen some leases recently where landlords served notice that the tenant MUST NOT reinstate particular items!
Be careful of these ‘must not’ types of reinstatement clauses. After all, how would you feel if you weren’t allowed to take with you the million-pound widget machine you installed when you left the premises because it has been too well annexed to the land? It’s a nice profit for the landlord while you lose out. Beware also of the difference between the wording ‘all alterations’ and ‘any alterations’. It’s only 2 letters difference, but misunderstanding this could have some big consequences for you. But that’s probably an issue for another article!
We’ve had a couple of cases recently with the same issue, so we wanted to address it here, and it’s landlords asking tenants to reinstate alterations that previous tenants made years ago, under the previous lease agreements. This is normally a big no-no, as (unless the lease has been very specifically worded to require the tenant to remove alterations made under previous leases), these alterations become part of the demised premises. This little trick is missed by solicitors more often than you would think, so watch out.
If your landlord has asked for this kind of work in a schedule of dilapidations, it can result in them declaring their intentions much more specifically than they had meant to. This usually leads to very strong supersession arguments, so the landlord’s surveyors have to make sure they’ve read the lease very carefully and explained its implications to their client before they make wide-ranging demands for reinstatement. Especially as this isn’t always in the landlords’ best interests.
If your lease has an obligation not to make alterations, but doesn’t have an obligation to reinstate at the lease end, then something interesting happens. In longer leases the landlord’s ability to require reinstatement or collect damages can expire after 12 years. This means making alterations is a ‘one and done’ action rather than a continuing breach. If this is the case, then the Limitation Act 1980 restricts the landlord’s ability to take action on it. It’s a neat workaround for longer leases, and many surveyors miss this – so don’t let yours be one of them!
In general, while chartered building surveyors are expected to handle dilapidations issues, there are very few who are true dilapidations specialists. This is where it pays to do your due diligence. Whether you’re a landlord or a tenant, it’s worth appointing a true dilapidations specialist who is looking after your interests. And the good news is, you already know one – us!
If you’re looking for advice on alterations that have been made under a commercial lease, or for wider dilapidations advice, we would love to help. Our specialist dilapidations team have years of experience, and a fair number of stories they can share with you as well. Just contact us on 023 8155 0051, and we’ll be happy to chat.
We also have a range of videos talking through various aspects of surveying. You can access them via our website or our YouTube channel.
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Tim set up Harrison Clarke Chartered Surveyors in July 2017 following a series of public and private sector surveying roles, having previously worked for the University of Cambridge, Rund Partnership, Goadsby, and CBRE.
Tim has degrees in building surveying, construction project management, and business administration.
