Landlord’s objective:

• to maintain the investment value of the Property by preventing adverse alterations to the structure, layout and external appearance; and
• to ensure that the Property can be re-let with the minimum of delay and expense at the end of the term.

Tenant’s objective:

• to have flexibility to alter the Property as the tenant’s own business needs change and to meet the requirements of potential assignees/sub-tenants.

What is permitted?

It is rare to find a commercial lease that absolutely prohibits all alterations. As with permitted use, a very restrictive alterations clause could lead to a lower rent being agreed on review. In any case, even where there is an absolute bar on alterations, Part I of LTA 1927 permits a business tenant to make improvements. Whether or not a particular alteration is an improvement is assessed from the tenant’s point of view. If the tenant correctly follows the procedure set out in LTA 1927, it can make improvements and claim compensation for them at the end of the term, unless the landlord opts to do the work itself, in which case it can charge additional rent for it. Either way, the tenant gets round the apparent ban on alterations.

If the lease prohibits alterations being made “without consent”, there is an implied proviso that consent will not be unreasonably withheld in relation to works that are improvements (s19(2) LTA 1927). In fact, most leases refer expressly to consent not being unreasonably withheld. In practice, the best way to deal with alterations is to divide them into three categories:

• those which are absolutely prohibited (such as alterations to the structure or the addition of any new structures);
• those which will be permitted with consent not to be unreasonably withheld (such as internal, non-structural alterations); and
• minor works which are permitted without the need for consent (such as erecting or removing internal demountable partitioning).

Reinstatement

The landlord and tenant must agree whether or not the tenant will have to remove any alterations or improvements at the end of the term. Landlords usually want to reserve the right to make the tenant remove all alterations, in an attempt to avoid having to pay compensation under LTA 1927. In fact, there is no guarantee that this will work, because s9 LTA 1927 prevents contracting out. Tenants will not want to be obliged to spend time and money removing alterations where, for example, the landlord intends to carry out a major refurbishment. In practice, most leases provide for alterations to be removed if required by the landlord. The Code recommends that the tenant should be required to remove permitted alterations only where it is reasonable – whether or not landlords agree this will depend on the bargaining position of the parties.