Contributed By McGuireWoods LLP
The extent of a tenant’s right to alter or improve its premises depends on the identity of the tenant and the nature of its lease. In a long-term ground lease where the tenant owns the improvements, there are typically few limitations (if any) on the tenant’s right to make alterations, provided they do not adversely affect the fair market value of the landlord’s property. Similarly, a credit tenant under a relatively long-term lease, or a tenant in a single-tenant facility, will have wider flexibility than a tenant under a short-term lease in a multi-tenant facility.
Where restrictions exist, there are some common features. Most landlords prohibit exterior or structural alterations, or any alterations that impact the HVAC, electrical or other building systems, without their consent. Even interior, non-structural alterations may be prohibited without consent if they are substantial in nature (eg, if they require a building permit, or if they exceed a certain dollar threshold). For permitted alterations, landlords typically require the right to approve the plans and specifications for the work, and also the identity of the contractor(s) performing the work. In the case of substantial additions, landlords may also require final plans or as-built surveys upon completion. In many cases, landlords also reserve the right to require tenants to post bonds or other security in advance of performing the work, and also that lien releases and other similar documentation be provided upon completion.
Finally, most commercial leases provide that the landlord may elect to require the tenant to remove the alterations at the end of the term, at the tenant’s expense, although the tenant may request that the landlord makes this election earlier in the term (eg, at the time the landlord consents to the alteration).