From time to time the impact of tenant improvements on commercial property is downplayed by the tenants and mishandled by the commercial property professionals.

Some tenants believe that every alteration that they make to the property to better suit their own business operation would benefit the Landlord by default. The reality is that nothing could be further from truth. Throughout our engagement in commercial property management we have seen offices, spray booths, cold rooms, built-in receptions, industrial waste systems, mezzanines, grease traps, showers, pergolas, shelving units, added wiring or plumbing etc. being dismantled with the disposal costs being charged to the landlord. The reasons for this are many including improvements made by tenants being unsafe or unsanitary, unwanted, outdated, unlawful, non-compliant and so on. The common denominator for all of these costly exercises was the absence of sufficient documentation relating to who did the alterations and when.

The majority of lease agreements cover this area of contention by stating that all work must be approved by the landlord before it is undertaken. Unfortunately, that is not always happening despite what is documented in the agreement. There are several reasons for this, including that these modifications are recorded poorly or not at all. Sometimes the problem is caused by the lengthy duration of the commercial lease. It is not unusual for a tenancy to outlast the people who handled the original lease negotiation. In this instance, if communication is not regularly documented and accessible, it gets lost or forgotten.   Sometimes the necessity for improvement arises later, well into the term of the tenancy and nobody bothers to refer to the original lease agreement for guidance. Every so often there is a problem within the management agency itself, either created by poor communication or poorly written procedures. An example of this would be the failure to conduct a property inspection at the end of a tenancy or at the start of the next. In this instance, there can be no documentation to refer back to in the event of a dispute neither can there be consistency between the stipulations of the lease agreement and the outworking of the same throughout the course of the tenancy.

All of the above could lead to bitter disputes and unnecessary legal proceedings leaving the majority of the stakeholders upset, disappointed and/or financially disadvantaged.

Good tenant induction requires that the understanding of responsibilities be integrated into the core of every lease negotiation. An experienced leasing agent will insist on the tenant’s acknowledgement that no alternation to the property should be made without landlord’s written approval. Sometimes a Landlord’s approval is just a formality, although it is still conditional and subject to the tenant’s acceptance of the following:

• All work is to be undertaken by a licensed and approved contractor
• The tenant must extend their own insurance to cover all improvements
• The tenant agrees to make restitution for any damage incurred when removing said improvements (if mutually agreed - to restore the property to its previous condition)
• What will happen with the improvement at the end of the tenancy must be clearly documented and understood by all parties

The additional agreement including a copy of the landlord’s approval and all other correspondence should be filed with the original lease documentation, having all changes highlighted, signed and included in the property folder. Furthermore, inspections at the beginning and at the end of all tenancies must be performed meticulously and on standardized forms. Photographs should be taken, labeled and stored with the completed inspection documentation for future reference.

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