Leasehold Improvements

General Article

Starting a new business, want to add some upgrades to your leased space? Take a look into leasehold improvements. These are improvements made to your lease space that add value to the property while you are leasing it. A new light fixture can add different style and appeal to your business where the old one was just boring and looked all wrong with your inventory.

Creating alterations, remodeling, renovating or adding on the property by the lessee, to make the space more usable, are all types of leasehold improvements. Other improvements may be painting, partitioning, installing retail counters, and replacing the flooring, adding dressing rooms and many other things. When looking at the accounting side of your additions, all improvement items should be listed as an asset that declines in value over time, as the value is depreciated over the life of the lease term or the improvement. Upon the end of the lease term, and depending on the type of improvement, it may be considered the property of the tenant, or the property of the owner without any obligation or cost. Be careful with the type of leasing you are involved in as well as how timely your payments are because it can impact your business credit. If an improvement can be removed without causing and damage or violating the terms of the lease, the tenant can remove it when they leave. A great example of this would be the owner of a hair salon can take their salon chairs, sinks and installed shelving with them, stripping the space down to its original structure. Improvements such as paint would obviously have to stay, therefore becoming the property of the landlord.

When looking into leasing a space, check into the lease options for upgrades and improvements. Some landlords pay for improvements to make their leases more appealing to you. If this is the case, the improvements would become the property of the landlord when the lease is over. When making extreme changes to the leased space, the tenant must discuss the improvements with the landlord. A large improvement that would need approval may be installing more than one sink like a salon would have.

In most areas, landlords are required by law to provide certain aspects, such as running water and electricity. It is therefore the landlords responsibility for the installation of water, however if specialized plumbing is required, that would be the responsibility of the tenant.