Improvements to Leasehold Business Premises

Improvements to Leasehold Business Premises

Tenants of commercial premises used for a trade business or professional purposes are often unaware that they have a statutory right under Section 3 of the Landlord and Tenant Act 1927 (the ‘Act’) to carry out improvements to the premises despite there being an absolute prohibition against alterations in their Lease.

Section 3

Section 3 of the Act allows a Tenant to serve written notice on the landlord stating his intentions to carry out works and if the landlord does not grant permission then the tenant can apply to Court for permission. The Court can authorise the improvements if such improvements fulfil the following criteria:-

1. Increase the letting value of the premises on termination.
2. Are reasonable and in character and
3. Will not diminish the value of any other property belonging to the Landlord.

The use of Section 3 also comes with the added benefit of potentially entitling the tenant to compensation and for this reason tenants should take legal advice to ensure that they comply with the procedural requirements as follows:-

1. The tenant should give written Notice to the Landlord of its intentions to carry out improvements (this can include a plan and specifications of the works.)  It also needs to state in the Notice that the tenant is exercising its rights under the Landlord and Tenant Act 1927, otherwise compensation may not be payable.
2. The landlord has three months in which to object (in which case the tenant can apply to the Court).  If the landlord does not object then the tenant can go ahead with the works.
3. On the completion of the works, the tenant should ask the landlord for a certificate that the works have been duly completed as this will be important to bring a compensation claim.  If the landlord is unwilling to provide a certificate within one month, the tenant should apply to Court for a certificate.

At the end of the tenancy, the tenant can apply for compensation which will generally be based on the additional value to the premises resulting from the improvements although the compensation can be based on the reasonable costs of carrying out the works

Section 3 of the Landlord and Tenant Act 1927 is rarely used in practice, perhaps tenants are deterred from the procedural requirements however more often landlords avoid paying compensation by ensuring that leases set out any tenants works that are to be undertaken at the outset of the tenancy or include a requirement for reinstatement of the premises to its original condition at the end of the lease.

How Kerseys can help

If you have any questions concerning your Lease, then please contact Kerseys Commercial property team who are experienced in all aspects of Landlord and Tenant Law.