What Is A Licence To Alter And What Should It Include?

Commercial property tenants regularly want to change how their premises look to reflect their commercial requirements, working practices and core values. However, most commercial leases expressly prohibit tenants from altering their premises without the landlord’s consent. A licence to alter is a document which enables you to make the changes you require on clearly defined terms. As a result, everyone knows where they stand, and the likelihood of a later dispute is significantly reduced.

Here, we explain what a licence to alter is and when you might need one. We consider how to obtain a licence to alter, discuss what the licence should include and consider what you should do if you have changed your premises without seeking the landlord’s permission first.

What is a licence to alter?

A licence to alter is a formal, written agreement between a landlord and tenant. It details the changes the tenant proposes to make to the premises and the terms on which the landlord consents to those changes.

When do you need a licence to alter?

Landlords are keen to control any changes their tenants make to their property. By insisting that the tenant seeks permission before altering the property, a landlord can protect their investment and prevent tenants from making permanent changes that render the landlord unlikely to be able to relet the premises at the end of the tenancy without incurring the cost of remedial work.

Before you undertake any works on the premises, you must check what the terms of your lease say about alterations. Most commercial leases expressly prohibit structural alterations or changes to the exterior of the property. Interior changes are often permitted with the landlord’s consent. This may include installing new fixtures, changing the floorplan or erecting or removing non-structural walls. Minor changes, such as those that are merely cosmetic or decorative, are usually (but not always) permitted without a licence.

Sometimes, though, even minor changes require the landlord’s consent. Alterations that may have a wider impact on the premises, such as introducing air conditioning, will likely require the landlord’s permission. Changes that impact the landlord’s ability to relet the property, such as anything that may negatively affect the EPC rating, will similarly usually require consent.

To be on the safe side, it’s always best to check your lease before making any changes to the premises, no matter how minor those changes may seem. If you are unsure as to whether consent is required, our commercial property solicitors can help.

How do you obtain a licence to alter?

You must formally apply for a licence to alter, and it’s better to do it sooner rather than later, especially if you are moving into new premises that need to be changed to accommodate your requirements. In these situations, you should give yourself enough time to apply for and negotiate a licence to alter before the lease is completed, or at the same time. Therefore, if the landlord refuses to permit your proposed changes, you have the chance to pull out of the deal to avoid being stuck with unsuitable premises.

The specific procedure for obtaining a licence to alter will depend on the terms of the lease and the landlord but, generally speaking, the process is as follows:

• Identify the works you wish to carry out

Before applying for a licence to alter, you should be clear on the nature and extent of the alterations you wish to undertake. You should collate a set of plans, drawings and specifications that clearly illustrate your proposed changes, including an explanation of how the work will be carried out. The more complicated and significant the works, the more detail you will likely be required to give to the landlord. You should also gather and include any evidence you have relating to matters such as planning consent and building regulations. Often tenants enlist the help of professionals such as architects and builders to help them prepare the necessary documentation.

• Prepare the application and send it to the landlord or their managing agent

The precise content of your application will depend on several factors, including the nature of your proposed alterations and the terms of the lease. However, the more detail you can provide at the outset, the more easily your landlord can process your application. Once your application is ready, you should send it to your landlord or their managing agent, as required.

• Landlord reviews the application

Your landlord may appoint a building surveyor and other construction professionals to carry out a thorough technical review of your application. The surveyor will check that your proposed changes comply with all relevant laws, such as health and safety legislation. They will likely raise a number of queries with you to enable them to fully consider whether your proposals are realistic and appropriate for the property in question. In cases involving more complex alterations, the surveyor and other professionals may wish to visit the premises to ensure they fully understand your application and its possible effects on the property.

• The landlord informs you of their decision

When they have completed their assessment of your application, the landlord’s surveyor and other construction professionals will make recommendations to the landlord. Where your proposals are deemed acceptable, they may nevertheless advise the landlord to attach conditions to the consent.

Most commercial leases state that the landlord cannot unreasonably withhold their consent to a tenant’s proposed alterations. What will be considered ‘reasonable’ in any given case will depend on the circumstances. If you have asked to make changes that are expressly prohibited under the lease, for example to alter the exterior of the property, the landlord is likely at liberty to refuse your request. If your proposals have potential knock-on effects, such as negatively impacting the property’s EPC rating, the landlord may similarly be deemed to have acted reasonably in rejecting them. A refusal on aesthetic grounds may be reasonable in certain circumstances, as can a refusal that is based on preserving the interests of others in a multi-tenant building.

If you consider your landlord’s refusals to be unreasonable, you may be able to take legal action seeking permission to carry out the works and, in appropriate cases, damages. However, litigation can be time-consuming and costly, and prevention is always better than a cure. So, when taking a lease of commercial property, you should seek to future proof the premises insofar as possible by addressing any alterations at the negotiation stage.

If your landlord approves your proposals, their solicitor will prepare the requisite licence to alter, which they will forward to you and/ or your solicitors for review.

• Work commences

When the licence to alter has been executed, you can commence the work on the basis described in the licence. We discuss what a licence to alter should include in more detail below.

What should a licence to alter include?

The precise nature of your licence to alter will depend on several factors, including the type of alterations you wish to undertake, your landlord’s requirements and the lease itself. As a very general guide, licences to alter usually contain the following terms:

• Landlord’s permission

The licence to alter should expressly state that the landlord consents to the alterations detailed in the licence on the terms stated.

• Scope of alterations

The licence to alter should clearly define the scope and nature of the changes the landlord permits. To ensure clarity, the licence should attach a set of comprehensive plans and drawings, a description of the works and any specifications regarding materials the tenant should use. Any discrepancy over the scope of the works can lead to later disputes, so this element of the licence should be very carefully and clearly drafted.

• Timeframe

The licence may specify the timeframe within which the tenant is expected to complete the alterations and detail any interim milestones they must meet. For instance, it may express that the landlord’s consent shall cease if works have not started within 6 months from the date of the licence. If this occurs, the tenant will either need an extension from the landlord, or to resubmit their application.

• Inspection

Most licences to alter allow the landlord or their surveyor to monitor the premises to check on the progress and confirm that the tenant is complying with the landlord’s conditions.

• Approvals

The tenant may be obliged to provide the landlord with copies of any approvals or certificates the works require. (e.g., . planning permissions or building regulations consent)

• Compliance

Licences to alter usually include terms stating that the tenant must comply with all relevant legislation, such as health and safety requirements and planning regulations.

• Insurance

The tenant will often be required to obtain and maintain appropriate insurance policies for the alternations and to provide the landlord with copies. Alternatively, the licence can oblige the landlord to insure the works but usually the tenant will be required to pay any additional premium.

• Indemnity

The landlord will usually require the tenant to indemnify them against any loss or damage incurred by the landlord as a result of the tenant’s changes.

• End of the lease

A licence to alter may address what should happen to the alterations at the end of the lease. The usual position is that the tenant must put the property back in the position it was in before they made the changes. This obviously involves further costs on the part of the tenant, so you may want to consider negotiating with the landlord to leave the works in situ when you leave. Clearly, your landlord will likely only agree to requests of this nature if they will not be out-of-pocket as a result, so it is usually only viable if your alternations have vastly improved the property or made it more attractive to potential new tenants.

• Costs

Where your lease states that a landlord cannot unreasonably withhold their consent to your proposed alterations, your landlord cannot seek to impose a charge for giving their permission.

Given the complex nature of licences to alter, most landlords and tenants instruct commercial property solicitors to advise on what should be included in the licence, the process and the party’s rights and obligations. As a general rule, the tenant will be expected to pay the landlord’s legal fees in addition to their own. The landlord may also insist that you cover their other professional advisors’ fees, such as their surveyor’s.

Sometimes, when an incoming tenant requires changes during the process of negotiating a lease, each party may agree to bear their own costs. Whether your landlord agrees to do so depends on several factors, most notably your respective bargaining positions. This is another reason to consider the need for any alterations at the outset before entering the lease.

What should you do if you have undertaken work without obtaining a licence to alter?

As we have stressed, you should always check the terms of your lease before proceeding with any alterations to your commercial premises. If you are obliged to obtain your landlord’s consent but proceed without doing so, you may be in breach of your lease, and your landlord may be able to take the following action against you:

• Forfeit the lease and take back control of the premises.
• Seek an injunction forcing you to reinstate the premises to their original state at your own cost.
• Seek damages for any losses they have incurred.

If you have already carried out the works and it transpires that you should have obtained your landlord’s permission first, you must try to agree a retrospective licence to alter with your landlord as soon as possible. This will likely be required if you needed to assign or transfer the lease. Under a retrospective licence to alter, your landlord essentially consents to the alterations you have already undertaken.  You are no longer in breach of your lease, so the risk of your landlord proceeding in any of the ways listed above falls away.

Again, it is likely the landlord will require you to cover their legal costs and any other professional costs such as surveyor fees.

Key takeaways

Licences to alter offer an invaluable solution to tenants who have found their ideal commercial premises in terms of size and location but who need to change the premises to satisfy their commercial needs. Tenants already in occupation of commercial property can use a licence to alter to change their property’s layout to accommodate a growing workforce, undertake a shop fit-out, reflect a change in working practices or simply modernise the space.

However, the vast majority of commercial leases prohibit tenants from making anything other than the most basic alterations without the landlord’s consent. The penalties for making changes without permission can be severe, and include forfeiture of the lease, an injunction and the payment of damages. Therefore, it is essential to check the terms of your lease before proceeding with any alterations. If your proposed changes require your landlord’s consent, a well-drafted, comprehensive licence to alter protects everybody’s position and significantly reduces the likelihood of a costly dispute.

• This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited 2024.