This article covers the situation where a tenant’s needs have changed, so modifications are needed to the leased premises to adapt to those new requirements.

Often where said changes are small, a simple letter consenting to the changes from the landlord may suffice. However, where such situations arise and the changes are substantial, then a requirement could arise whereby a separate document called a license to alter would be needed from the landlord.

What is the starting point?

Check the lease to see to what extent the landlord needs to be involved – will a simple consent letter from the landlord authorising the proposed changes do or will a fully-fledged license for alterations need to be agreed before any work can be started?

The lease will also clear up information as to what power the landlord has to agree or refuse anything, and whether the landlord can attach conditions or qualifications to any consent given.

However, for the purposes of our article, let us assume a full license to alter will be needed and as such, let us consider both the (non-legal) practical considerations a tenant might want to know before entering such an arrangement, and the legal ones too.

Practical considerations

Though preparing commercial leases can often be quick, you might find various bouts of queries/due diligence lists being thrown around between solicitors and to clients throughout the process of negotiating licenses to alter.

Strictly speaking, the more moving parts there are, the longer the matter will take to complete because solicitors often require approval or input from their clients before corresponding with the other parties.

As such, the following considerations (though not an exhaustive list) should be kept in mind which we have prepared from our experience dealing with a view to alteration works: –

• Has (non-formal) consent from the landlord been obtained in principle? Generally, whether it is through a simple email or via a heads of terms memorandum, obtaining initial consent to the proposed alterations can be crucial to the speed of the preliminary legal work (e.g., solicitors confirming instructions and circulating first drafts)
• Initial consent by the landlord may also come with a caveat that the landlord’s professional fees will need to be met by the tenant. This can then lead to negotiations to agree liabilities for costs/professional fees between the landlord and tenant’s solicitors, so the sooner this is all agreed the better as often, work on the legal side will not get underway until the costs have been ironed out
• Moreover, clarity on the exact fees parties may be liable for (including any express maximum amount) is certainly helpful for peace of mind should the matter get drawn out beyond an estimated completion date
• Has there been an indication of what the landlord requires in terms of third-party consents? Some landlords may want detailed plans, drawings, and specifications whereas some may be happy with a simple description of the works in the license itself together with evidence the works have been signed off by the correct people for insurance purposes. Whatever it may be, the more information prepared by the tenant when it comes to documentary evidence, the better. As such, tenants should ensure all such paper trails are obtained from contractors, builders, and local authorities and provided to solicitors before negotiations are commenced
• Physically inspecting the property and obtaining information such as electrical schematics and plumbing and so forth will almost certainly speed up the due diligence process and allow early exchange of information between the tenant’s solicitors and the landlord’s solicitors as to what works are being proposed

Legal considerations and negotiation points

The following are some key considerations that landlords and tenants should be thinking about when trying to agree the terms of a license for alterations: –

• A landlord could demand works to commence by a certain date and be completed by a certain date but if a tenant is unsure of when the works will be completed by, negotiating an extension mechanism expressly in the license is sensible to cover the risk of non-conformance with the license and potentially renegotiating with the landlord
• If any lease terms were to be breached in granting the license, what would the parties wish to do? Would they want to enter renegotiations on any premiums being paid, walk away from the license or perhaps, even seek a certain level of compensation? All sorts of factors could act as triggers (the standard of the materials to be used, potential damage that could be caused to neighbouring property, nuisance, or disturbances by way of accesses being blocked or noise pollution) so it would fall on the parties to reach agreement on the level of risk and tolerances they would be willing to take so the license is clear on this
• Where compensation was to be a consideration, parties would also need to decide on the appropriate level of quantum or best way to reach agreed figures – be it setting out within the license actual set costs or referring to an independent third party determining what the correct sum should be
• To ensure parties work together, having provisions in the license obliging the landlord and the tenant to cooperate and provide pertinent information to one another is also a smart way to alleviate some risk

DISCLAIMER: The information and opinions expressed in this article does not address individual requirements and is for informational purposes only. It does not constitute any form of legal advice and should not be relied on or treated as a substitute for specific advice relevant to your particular circumstances.