Understanding a Licence for Alterations

If you’re a tenant with a commercial lease and want to make changes to the property, you’ll usually need to get your landlord’s written permission before carrying out any works.

A Licence for Alterations is a legal document, supplemental to a lease, documenting this consent and identifying the scope, conditions and requirements for the tenant’s works in order to ensure both the tenant’s and the landlord’s interests are protected. 

A Licence for Alterations can be tailored in order to ensure the specific requirements of the tenant’s works have been considered.

Major or substantial works 

A tenant looking to undertake major works will be seeking landlord consent to make structural changes to the premises. This may include removing or replacing walls, doors or staircases, carrying out extensions or conversions of the property, or installation of equipment on the roof or exterior of the building.

Such works may require planning permissions and compliance with the Construction (Design and Management) Regulations 2015 (CDM 2015), as well as considerations of the Building Safety Act 2022 (BSA 2022) for mixed use buildings, and related legislation.

Minor non-structural works 

Minor alterations, commonly referred to as ‘fit-out works’, would include transforming the ‘shell’ of a commercial unit into a functional space suitable for the tenant’s specific use of the premises. This will frequently involve installing fixtures, branding and signage, and electrical wiring.

While works of this nature are unlikely to require the granting of any planning permission, a Licence for Alterations should ensure the tenant complies with key obligations such as obtaining any necessary consents, adhering to quality standards, timeframes and reinstatement requirements.  

Retrospective licences

Circumstances may arise where a tenant has already carried out alterations at the demised premises, without the consent of their landlord. Where a lease requires landlord consent for works, such tenant alterations would be in breach of the tenant’s lease obligations. However, where both parties are in agreement as to the suitability of the works and the landlord does not wish to pursue a route of forfeiture or termination of the tenancy, the parties can formalise the position by documenting the landlord’s consent to the works post-completion. 

Define the scope of works

Ahead of any consent being granted, the tenant should produce full plans, drawings and specifications identifying the extent of the proposed alterations for the landlord’s approval. The landlord may be required to notify its insurers with details of the works, if so required under the landlord’s building insurance policy. Once approved, these plans will be annexed to the Licence.

Ensure compliance with building and safety regulations

Building alterations can often give rise to regulatory issues and a properly drafted Licence should adequately address each party’s legislative obligations. For example, where major works are considered to be ‘construction’ projects, the CDM 2015 imposes health and safety obligations. Consideration should also be given to the impact of any works on the premises’ Energy Performance Certificate rating, whether fire precautions required under the Regulatory Reform (Fire Safety) Order 2005 have been implemented, and whether the materials used in the works contain asbestos or risk disturbing any existing asbestos. It is important for your surveyor/contractor who is undertaking these works to provide input on these risks.

Understand reinstatement obligations

The landlord will seek to impose an obligation on the tenant to reinstate the property and make good any damage caused at the end of the lease term. For minor works, this would usually be unproblematic. Where tenant works are structural, careful consideration by the landlord and its surveyors should be given; a landlord may in fact prefer for the works to remain at the end of the term. It is important to consider both the reinstatement provisions in the lease and Licence for Alterations to ensure they work harmoniously and do not contradict each other. 

Agree clear timeframes for the works

Generally, a Licence for Alterations will identify several timescales and deadlines for the tenant to comply with in relation to the works. Firstly, it is common for the consent granted by this Licence to cease if the tenant has not commenced with works within a set timeframe from the date of the Licence. If this deadline is exceeded, the landlord may agree an extension of its consent but there is no obligation to do so.

Once the works have commenced, a Licence is likely to impose a deadline for their completion. On completion of the works, the tenant may be obliged to notify the landlord and provide the necessary post-completion documentation, such as updated plans of the property or an updated EPC, as appropriate, within one month of completion. 

Other key drafting considerations

• Consent - In certain circumstances, the consent of a third party may be required for example a superior landlord, guarantor, existing lender or neighbour. In this case, they should be a party to the Licence and have full knowledge of the Licence obligations and details of the works. 
• Rent review - If the lease of the premises contains a rent review, the parties must agree as to whether the renovations or fit-out works will be considered within the ‘hypothetical lease value’ upon review. Normally, these are disregarded where these are minor works. When negotiating a lease, it is worth dealing with this at the outset to ensure you do not experience delays in commencing your fit-out works once the lease completes.
• Costs - Where a Licence for Alterations is negotiated alongside lease negotiations, there is a potential cost saving for the tenant. During lease negotiations, it is common for each party to cover their own costs, where as a tenant is likely to need to pay a landlord’s legal costs for a Licence entered into post-completion of the lease.

This article provides a brief overview of the complex nature of these Licences. The considerations highlighted above will be dependent on the nature of the property, the works, the parties’ requirements and any specific negotiated points. We therefore recommend you obtain appropriate legal advice before entering into any documentation.

Russell Cooke’s commercial Real Estate team are highly experienced in advising on transactions requiring a Licence for Alterations and our team are happy to apply our expertise towards tailoring a Licence for Alterations transaction for you.

Sarah is a legal assistant in the Putney real estate team, with a breadth of experience in transactional commercial property work.