Licenced for growth: how manufacturers can avoid crippling penalties

Leases of any commercial space usually prohibit or restrict the tenant’s ability to alter the property in various ways. This protects the landlord from changes that may have an adverse effect on the property such as its value or the ability to re-let it in the future.

A way around this is for the lease to permit tenants to apply to the landlord for a licence so alterations can be made. The Landlord and Tenant Act 1927 states that, where these are put forward as an “improvement”, consent cannot be unreasonably withheld.

When applying for a licence, the tenant must set out the proposals clearly, so the landlord is able to make an informed decision about consent or reasonable refusal.

The financial penalties for making alterations without a licence could be crippling for a manufacturer. They can include the lease being forfeited and/or the landlord requiring that the property be returned to its original state. There is also the wasted expenditure on making the alterations in the first place.

However, securing a licence to adapt manufacturing spaces can take time – and is also costly.

Many innovating businesses find it unreasonable to expect a licence to be entered into every time adaptations are needed for improved operations – whether for a change of layout or a complete reconfiguration of the production line.

Tenants must usually pay their landlord’s legal and surveyor’s fees when preparing a licence – and, with so many manufacturing, engineering and tech operations accelerating their growth and development, this can become very expensive.

There is a growing opinion that manufacturers should be able to alter the property without consent in order to develop their businesses. So how can they avoid being thwarted and impeded when seeking to customise the space they operate for enhanced working practices?

A method to streamline the process is agreeing an over-arching licence to make improvements. Although these licences have traditionally been seldom used, they are forecast to become increasingly popular with advancing technologies.

The licence could set out a framework for production companies to develop their environment as the need arises. It would detail the types of alteration that might be required, any reasonable limitations to change – and the tenant’s responsibilities upon the termination of the lease, however this may come about.

Understanding and complying with the rules on alterations to a leased workspace while obtaining maximum benefit from it as a production base can be a complex affair. This makes taking advice from a legal practice with a strong reputation in commercial property when drawing up a lease – or reviewing one – essential for fast-evolving manufacturers.

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