Alterations, User & Planning

Question 1

What are alterations?

Answer 1

Changes to the premises, such as reconfiguring the internal walls, opening up new windows etc

Question 2

If the lease is silent on alterations, is the tenant free to carry out alterations?

Answer 2

Yes, but there is a restriction imposed by law - the doctrine of ‘waste’.

Question 3

What is the doctrine of waste?

Answer 3

A restriction imposed by law which means the tenant can’t carry out alterations which reduce the value of the premises.

Question 4

Why would an institutional landlord want to control tenant’s alterations?

Answer 4

To avoid issues such as the premises being less appealing to other future tenants.

Question 5

What are some typical provisions in an FRI lease?

Answer 5

• the type of alterations permitted (external/internal, structural/non-structural)
• if they’re permitted, whether landlord’s consent needed
• whether they must be reinstated (ie the premises returned to its original state) at the end of the lease term)

Question 6

What will the degree of control depend on?

Answer 6

The type of alteration
(example - in an office lease it’s common to allow internal non-structural partitions to be altered to provide a different office configuration)

Question 7

What does an absolute covenant against alterations mean?

Answer 7

It means alterations aren’t permitted.

Question 8

What if a tenant wants to make an alteration covered by an absolute covenant, can they make alterations?

Answer 8

They can ask the landlord, but the landlord has no obligation to consider such a request.

Question 9

What does a qualified covenant against alterations mean?

Answer 9

They’re only permitted with landlord’s consent, but the landlord isn’t obliged to give consent.

Question 10

What is a fully qualified covenant?

Answer 10

(similar to a qualified covenant) but the landlord must act reasonably in deciding to withhold consent.

Question 11

Can the same lease have a mixture of absolute, qualified and fully qualified covenants?

Answer 11

Yes - for different matters

Question 12

example of mixture of covenants…

Answer 12

It might have an absolute covenant against external & structural alterations, a qualified covenant against internal non-structural alterations, and no covenant against alterations to internal partitioning.

Question 13

If the lease contains a qualified covenant against alterations, what converts it to a fully qualified covenant?

Answer 13

s19(2) LTA 1927 converts it to a fully qualified covenant insofar as the tenant’s proposed alterations are improvements from the point of view of the tenant.

Question 14

Improvements - example

Answer 14

A tenant applies for consent under a qualified covenant to modernise the air conditioning system. As it’s an improvement for the tenant, the landlord must act reasonably in its decision to give/withhold consent.

Question 15

If the landlord consents to alterations under a qualified covenant, where will the consent usually be documented?

Answer 15

In a licence for alterations.

Question 16

What kind of tenants covenants will be found in the licence?

Answer 16

(details of the works consented to, time limit for carrying them out)

• carry out the works in compliance with the landlord’s requirements, typically with good quality materials & high standard of workmanship
• obtain all necessary consents (planning permission, building regulations approval)
• pay landlord’s costs in dealing with the tenant’s application for a licence for alterations (usually surveyor’s & solicitor’s costs)
• reinstate the premises at end of lease term (fix damage & put back in original state)

Question 17

If the tenant’s proposed alterations are improvements, can the tenants circumvent this - even if the lease contains an absolute covenant against alterations?

Answer 17

Yes, by using a statutory procedure.

Question 18

What is the statutory procedure for tenant’s carrying out improvements even though the lease contains an absolute covenant against alterations?

Answer 18

1) under s3 LTA 1927 … the tenant serves notice on the landlord of its intention to carry out improvements

2) if landlord objects - tenant can apply for courts permission to carry out the improvements - the court will give permission if the improvements…
- add to the letting value of the property
- are reasonable & suitable to the character of the property
- will not diminish the value of any other property belonging to the landlord

3) if landlord doesn’t object within 3 months - tenant may go ahead and carry out improvements

4) the landlord may offer to carry out work itself & increase rent, but tenant doesn’t have to agree

Question 19

What does user refer to?

Answer 19

User refers to what the lease allows the tenant to use the premises for.

Question 20

What does it mean, if the lease is silent on user?

Answer 20

Then the tenant is free to use the premises for anything they like
(the lease will control the use of premises with a user clause)

Question 20

What are the consequences of the landlord wishing to keep the user narrow?

Answer 20

It limits the appeal of the premises, which could limit the market rent on rent review.

Question 21

Can the lease prohibit changes of user (absolute covenant), allow changes of user with consent (qualified covenant), or allow changes of user with consent not to be unreasonably withheld (fully qualified covenant)?

Answer 21

Yes

Question 22

Does statute convert a qualified user clause to a fully qualified user clause?

Answer 22

No.

Question 23

S19(3) Landlord & Tenant Act 1927

Answer 23

If the landlord decides to give consent to a change of use, the landlord may not charge a lump sum or increase the rent for giving consent unless the change of use also requires structural alterations (in which case the landlord may charge a lump sum or increase the rent for giving consent)

Question 24

Is statute less generous to the tenant for changes of use or for alterations?

Answer 24

Changes of use.

Question 25

Can a change of use take the property outside the use class for which it has planning permission?

Answer 25

Yes

Question 26

Will the lease usually contain a clause requiring that the tenant complies with the relevant laws?

Answer 26

Yes

Question 27

What must a tenant do to comply with the lease and to ensure it doesn’t face enforcement action?

Answer 27

Ensure they have the relevant consents.

Question 28

Example

Answer 28

A landlord gives consent to a clothes shop (class E(a)) in a shopping centre being converted to a betting shop (sui generis use). The change of use will require planning permission. The tenant will need a betting premises licence.

Question 29

Code for leasing business premises - good practice on alterations & change of use:

Answer 29

• lease should only restrict alterations and change of use insofar as necessary to protect the value of the premises & any adjoining/neighbouring premises of the landlord
• the code (subject to certain exceptions) requires a landlord to at least give the tenant a fully qualified covenant for internal non-structural alterations in a lease of part, and the tenant the ability to carry out internal non-structural alterations without consent in a lease of a whole
• if the landlord will require any alterations to be reinstated at the end of the lease, this should be made clear in the heads of terms. Otherwise the lease may only require this if it’s reasonable

Question 30

What will FRI leases control?

Answer 30

• what alterations the tenant may carry out & may distinguish between external/internal and structural/non-structural alterations
• the use of the premises

Question 31

Does statute upgrade a qualified covenant to fully qualified?

Answer 31

No, but does have some restrictions