Shop and Office Fit Out Works: What Does the Lease Say?

Morrish SolicitorsProperty, Site News

Most retail shops and offices will be occupied by tenant owners under the terms of a Lease.

The issue of fitting out the shop or office will usually arise as part of the negotiations when a new Lease is granted to the original tenant or at a later stage if either the tenant transfers the Lease to a new tenant who wishes to re-fit the property or the current tenant wishes to update the equipment, fixtures and fittings.

In all of the above situations it is important that the tenant understands what requirements must be fulfilled under the terms of the Lease before any proposed works are undertaken. In addition, (in the case of a new Lease) the tenant should seek to ensure that his or her solicitor negotiates the Lease so that it enables the proposed works to be undertaken.

Whilst this article will focus on the tenant’s Lease requirements, it is also important to be aware that many of the proposed fitting out works to be undertaken may also require statutory or other consents. For example, when new shop or office signage is proposed this may require planning permission (depending on size) and in any event in the case of illuminated signage.

In a Lease fitting out works will usually be found under the heading “Alterations”. In the absence of any restrictions on alterations, then the tenant will be able to carry out any alterations they require, subject to complying with other legal requirements.

Most leases, however, will restrict alterations. The most frequently prohibited alterations are those to the exterior and/or the structure of the property. So, if such alterations are envisaged, this is a point that would need some negotiation!

Non-structural alterations to the interior are usually permitted with the prior written consent of the landlord, but it is recommended that the Lease makes clear that the landlord’s consent is not to be unreasonably withheld or delayed to a request to make such alterations.

The Lease will usually contain a series of pre-conditions that must be satisfied before these alterations may be carried out, which will frequently include some or all of the following:

• The production of plans for the landlord’s approval (usually 3 sets);
• The requirement to obtain a written “Licence” (a form of consent) from the landlord authorising the works;
• The payment of the landlord’s legal costs (and sometimes also the landlord’s surveyor’s) costs in connection with the preparation and grant of the Licence.

Some alterations may be carried out without the above procedure, but if in doubt when negotiating the Lease, it is better to include a provision in the Lease that makes this clear. For example, some Leases include a provision that enables the tenant to construct and remove internal demountable partitioning without the landlord’s consent being required.

If a Licence is required then, depending on the nature of the works, it may be very detailed or a minor works Licence. What it should include are provisions dealing with:

How the works are to be carried out
It is important to the landlord to ensure that the works are carried out properly and with good materials suitable for the envisaged work

What is to happen on rent review i.e. is the value of the works to be disregarded?
This is very important to the tenant as, if this is not done, the works are effectively being paid for twice over as not only has the tenant paid for them, but the value they have added to the property is being rentalised on review.

What is to happen to the works at the end of the Lease term?
Most leases will seek to give the landlord flexibility so that the landlord can (if they wish) require the tenant to remove the works at the end of the Lease term.

Who will insure the works?
It is important to ensure that not only is there suitable insurance in place whilst the works are being carried out, but also that when they are completed details of the works are provided to the insurers so as to avoid any breach of the insurance policy.

Further guidance for tenants generally can be found in the Code for Leasing Business Premises in England and Wales 2007 and specifically in the supporting Occupier Guide which includes recommendations for tenants who are making applications for licences for alterations.

This Fact Sheet is for information only and is not intended to be a substitute for legal advice.

For further legal guidance on the matters contained in this article and all commercial property matters contact:
Tel: 033 3344 9600
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