Avoid being floored - a checklist for tenants

27/01/2011

By Mark Steggles, Senior Associate in Dispute Resolution.

Businesses looking to expand may require additional space as a result. Rather than securing additional premises, tenants may look to make better use of existing space by installing a mezzanine floor. We examine the pitfalls.

Check the lease

If you are considering installing a mezzanine floor, first check the terms of your lease to see whether the landlord's consent is required.

If consent is required, a landlord will often insist on a formal application being made. If a tenant fails to apply for consent in accordance with the terms of its lease, a landlord could seek an injunction preventing the proposed alterations, seek to forfeit the lease, or bring a damages claim.

Submit plans and timeframes at an early stage

Where the covenant against alterations states that no alterations may be made without the landlord's consent, the landlord is under a statutory duty not to unreasonably withhold consent.

Naturally, the more information a landlord has about the proposed works, the greater the prospects of a decision being reached promptly. To assist, a prudent tenant will submit plans, details of the nominated contractors, and anticipated timeframes to the landlord at an early stage.

A landlord will usually request a payment in respect of its fees incurred in connection with considering the application.

Consider planning permission

Planning permission will not generally be necessary for internal works (unless the building is listed or there are pre-existing planning conditions). However, there are some limited exceptions for large expansions of retail space and you must still consider whether buildings regulations consent is required.

Establish the effect of the mezzanine floor on rent

The other factor for a tenant to consider is the effect that the mezzanine floor will have on rent, both during the term for the purposes of rent review and particularly on renewal.

If the mezzanine floor is a tenant fixture, in that it is annexed to the building but may be readily removed and re-used without harm to it or to the building, then it is likely to be disregarded at rent review. However, objects which have become part and parcel of the land are termed 'tenant improvements' and careful consideration of the lease is required to establish how these are treated at rent review.

If a lease provides that tenant improvements are to be disregarded for the purposes of rent review, then this will not be a problem. However, if they are not disregarded, then you need to consider whether it is appropriate to make a specific provision in the licence dealing with the treatment of the mezzanine. Without such a provision, there is a real risk that the premises will be valued with the benefit of the improvement. This may expose you to an increase in rent on review as a result.

Consider lease renewal under the Landlord and Tenant Act 1954

You should also be mindful if the lease is being renewed under the provisions of the Landlord & Tenant Act 1954. You may want to ensure that the mezzanine is not deemed part of the fabric of the building, as this may affect the open market value of the premises. There are statutory provisions which ensure that the court disregards certain types of improvements when considering 1954 Act renewals. However the statutory disregard only applies to improvements carried out under a current tenancy and less than 21 years ago.