Leasehold improvements are alterations made by tenants to a building to make it more usable, such as installing counters or partition walls. If removable without damage, they belong to the tenant, otherwise to the landlord. Landlords may pay for improvements and deduct expenses from taxes. Consultation with the landlord is necessary before making improvements, and tenants can deduct costs. Landlord liability laws vary by country.
Leasehold improvements are alterations to a building made by a tenant to make the space more usable. Some examples of leasehold improvements include: painting, installing retail counters, partition walls, replacing floors, and building dressing rooms, among other things. Leasehold improvements are sometimes referred to as “build-outs” and, depending on the nature of the improvement, may be considered tenant property or landlord property.
If a leasehold improvement can be removed without damaging the property or violating the terms of the lease, the tenant has the right to remove it when they leave. For example, spa owners might choose to bring their hot tubs, saunas, and body treatment equipment with them, stripping the space down to look pristine. On the other hand, if a tenant paints his or her house, removing the paint would obviously damage the structure, as well as being rather silly, so the lease improvement is considered the owner’s property.
Some landlords pay for leasehold improvements to make their leases more attractive, and in these cases, the improvements belong to the landlord. The owner would also have the right to deduct the expenses of the improvements and their depreciation over time from his taxes. Many owners in spaces such as shopping malls offer leasehold improvements as part of their contracts, to attract customers.
When a tenant undertakes leasehold improvements, the landlord should be consulted, whether the tenant intends to replace the bathroom floor or create an office suite. Landlords may decide not to approve proposed improvements and request that the tenant propose a different plan. The tenant is able to deduct the cost and depreciation of the leasehold improvements for which he pays, reflecting the fact that these renovations are necessary for the space to be usable.
Tenants should be aware that many countries have specific landlord liability laws. For example, landlords are often required to provide access to running water and electricity. Therefore, a tenant would not need to pay for water access and a water meter to be installed, although the tenant may need to pay for specialized plumbing in the facility. Likewise, many landlords would have to perform routine maintenance such as roofing and security improvements, so tenants would not have to pay for these types of renovations.
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