You want to take a lease of an amazing property in the perfect location, but the inside of it just isn’t set up for what you need to use it for.
The way your business works has changed or you have taken on more staff and have nowhere to put them.
What do you do next? You will need a licence for alterations to make the property work for you.
In this guide, our commercial property solicitors explain when it is appropriate to use a licence for alterations, the benefits of using a licence for alterations and the costs involved.
Contents:
- What is a licence for alterations?
- What are the benefits of a licence for alterations?
- When is a licence for alterations needed?
- How do I apply for a licence for alterations?
- How much does it cost for a licence for alterations and who pays?
- Can a licence to alter be refused?
- What do I do at the end of the lease?
- Can the landlord charge a premium for granting a licence for alterations?
- What do you do if the property has been altered without permission?
- What do you do if there is a dispute about alterations?
What is a licence for alterations?
A licence for alterations is a written agreement with your landlord that gives you permission to carry out works or make changes to the property. They are not something that you are automatically entitled to; you will have to apply to your landlord for consent and this will normally involve giving them details, drawings and technical information about what you have planned.
What are the benefits of a licence for alterations?
The benefit of having a licence for alterations is that you do not risk being in breach of your lease agreement for doing unauthorised works.
A well drafted and detailed licence means that there is no doubt about what was permitted at the time and leaves no room for arguments later. It helps maintain good relationships and promotes trust between landlords and tenants.
When is a licence for alterations needed?
Most leases prevent tenants from carrying out structural works or works that change the internal parts of the building without prior, written consent. This is because tenants do not own the property and those who do, want to keep a bit of control over what happens there to protect their investment and ensure that they can let it out again in future with minimal problems.
Some leases require licences for alterations where you are doing very minor works to the property, but it would result in a change to its EPC rating. Likewise, a licence might be needed where you are making small openings in the property to install telecommunications cabling.
It is always worth asking your commercial property solicitor to check your lease to see exactly what is and is not allowed and what can be done with the landlord’s consent.
How do I apply for a licence for alterations?
The first thing you will need to be clear on is exactly what you plan on doing to the Property. Once you know what this is, you will need to have some drawings put together which show the Property as altered by the work you want to carry out. It is often also helpful to have some technical information for how the work will be carried out and specifications on things like the materials you will be using. You may need to speak with your architect (if you are using one) or building contractor about this and ask for their help to ensure that it is correct.
The content of your application for consent will ultimately depend on the terms of your lease and the work you have planned but you will want to put together a pack of documents to make it as easy as possible for your landlord to assess and make a decision.
Your landlord will use this pack of information to liaise with their surveyor and decide whether or not the works are appropriate and suitable for the property. They may produce a basic set of heads of terms which shows what has been agreed between the two parties. This makes it easier for commercial property solicitors to draft and negotiate the paperwork and make sure that it matches what has been agreed.
On the assumption that the landlord is happy for you to go ahead, he will instruct his solicitor to prepare the licence for alterations. At this point you will also want to instruct a solicitor who will look over the licence for you and ensure that it meets your needs.
The licence itself will usually attach the initial application paperwork (the plans, drawings and technical information) as well as a written description of the work to make it clear exactly what is allowed. It will also state anything the tenant and their contractor must do during the works, who has responsibilities under Health and Safety legislation and will usually include a provision for who pays the costs of the licence. There may be insurance requirements relating to the work and obligations to be respectful to any other tenants of the building and/or neighbours.
It is important to note that having a licence for alterations does not mean that you do not have to apply for planning and building control consents where applicable and the licence will often make it clear that the tenant is responsible for this.
It will also state whether the works have to be removed and the property reinstated at the end of the lease term. This is talked about in more detail below.
How much does it cost for a licence for alterations and who pays?
The landlord is entitled to have their reasonable legal fees paid for by the tenant who is making the application so you may be asked to pay this in addition to your own legal fees. Sometimes they will also ask you to pay their surveyor’s costs.
You may also incur your own costs in producing the technical plans and specifications for the landlord’s decision-making process.
Can a licence to alter be refused?
Most leases state that landlords cannot unreasonably withhold or delay their consent to works that require consent under the lease. So quite often, there won’t be a problem and your works will be approved.
It may be more difficult where a property is a listed building for example. In this case there will be more to take into account for the landlord and they may grant consent subject to more conditions.
Where a lease states that certain types of alteration are prohibited (e.g., structural works), the landlord will be entitled to say no and this will be deemed reasonable.
What do I do at the end of the lease?
Your lease will often state what is expected of you at the end of the lease, but this will be further detailed in the licence to alter.
The fall-back scenario will often be that the tenant must ‘reinstate’ the property. This means that they must return it back to its original layout and condition. However, depending on what the works are, you may want to try and agree with the Landlord that the works can stay. This may be attractive to a landlord where you have made a great improvement to the condition of the property or where your works would have broad appeal to a wide range of incoming tenants.
The licence will give time frames for when the reinstatement works must be completed so this should be factored into your timings if you are moving to a new property as you may not be able to use it during this time.
Can the landlord charge a premium for granting a licence for alterations?
Where the lease states that the Landlord cannot unreasonably withhold consent to alterations then no, they cannot charge a premium for granting a licence for alterations. This would likely be deemed to be unreasonably withholding consent.
Asking for a premium is different to a situation where a landlord requires the payment of a sum of money in respect of any damage or reduction in value to the property as a consequence of the works. They are entitled to do this where appropriate.
What do you do if the property has been altered without permission?
Altering the property without first obtaining the relevant consents will be a breach of the lease and the Landlord may be entitled to forfeit (terminate) the lease. As such, this is something that you will want to remedy as soon as possible by trying to agree a retrospective licence for alterations with the landlord. This will give permission for past works and mean that you are no longer in breach.
A retrospective licence for alterations contains a lot of similar provisions to a normal licence for alterations, but reframes the obligations so that the tenant is confirming that it acted in certain ways and took certain actions before carrying out the works. If you did not take steps during the works that the Landlord deems necessary, they can insist that you now carry them out.
What do you do if there is a dispute about alterations?
If the tenant thinks that their landlord has unreasonably withheld or delayed consent, then the tenant is entitled to take them to court to obtain consent to the works and sign off via a court order. Prior to starting litigation, they should consider some sort of alternative dispute resolution to try and resolve it that way first. Litigation should always be a last resort.
If you have carried out works that you did not have consent for and the landlord does not want to grant you retrospective consent, the landlord may be entitled to forfeit your lease. Alternatively, they can oblige you to remove the works and reinstate the property to its original state. If they feel particularly strongly and do not feel that you are acting on their requests, they can even take you to the Property Tribunal or county court. You would likely be found to be liable to reinstate the works and pay the landlord’s legal costs.
In all cases, you should work closely with your solicitor to try and resolve the issues. They can advise on the most sensible course of action in your circumstances.
