Can You Remodel A Rented Commercial Space?
[BLOG] Published: 2023-03-08 - Updated: 2023-04-01
Can You Remodel A Rented Commercial Space?
Commercial remodeling projects are picking up even more speed as companies embrace hybrid work models and more retail spaces are reopening their doors.
As a business owner who is renting a commercial space, you may be wondering if it's possible to remodel or make significant changes to the space. The answer to that will depend on your lease agreement and the degree of the changes you wish to make.
If you’re looking to renovate your commercial space, here are a few things you should know.
Factors To Consider Before Starting A Commercial Space Remodel
Consult with Your Landlord
It’s a good idea to discuss your plans with your landlord first if you're considering a remodel. They will be able to provide valuable insight into what types of changes are possible and how they could affect your lease agreement.
You may find that the landlord may also be willing to work with you to make the remodel more affordable or provide assistance with the permitting process. Also, keep in mind that your landlord may also have their own requirements or restrictions that you'll need to follow.
Review Your Lease Agreement
Before making any changes to the space, it's important to carefully review your lease agreement to see what types of alterations are allowable. The lease agreement may include provisions that restrict or limit your ability to make any major changes to the space.
You will find that some leases will require you to get the landlord's written permission before making any changes. Other leases might restrict the area of the changes you can make or even require you to restore the space to its original condition when you move out.
Consider the Remodeling Cost
Commercial remodeling can be expensive, so it's important to consider the financial implications before making any changes. Depending on the extent of the remodel, you may need to hire contractors, purchase new equipment, or obtain permits from the local government.
ProTip Takeaway: Factor in the potential return on investment (ROI) of the commercial space remodel. Consider whether the changes will increase the value of the space or improve your business's bottom line.
It’s important to hire qualified professionals like Smart Remodeling LLC to ensure that the work is done correctly and safely. This may include architects, engineers, contractors, and electricians.
ProTip Takeaway: Evaluate potential contractors and get multiple bids to ensure that you're getting a fair price. It's also a good idea to check their references and ask to see examples of their previous work.
Get The Necessary Permits and Licenses
You will need to obtain permits and licenses from the local government depending on the scope of the remodel. These permits and licenses should be obtained before starting any work to avoid fines or penalties. Your contractor or architect may be able to assist you with the permitting process.
What Modifications Are Permitted with Commercial Leases?
The type of modifications that are allowed with commercial leases can vary depending on the type of lease agreement between the landlord and tenant. However, here are some common modifications that are typically allowed:
Interior Decorations: Tenants are generally allowed to make cosmetic changes to the interior of the space. These can include painting, installing new flooring or carpeting, hanging artwork, or adding decorative elements.
Furniture and Fixtures: Tenants are also allowed to bring in their own furniture and fixtures which can include desks, chairs, shelves, or lighting.
Minor Alterations: Minor alterations to the space, such as installing new shelving or cabinetry, are often allowed with the landlord's approval. However, tenants may be required to return the space to its original condition at the end of the lease.
Signage: Tenants can be allowed to install exterior signage to advertise their business. However, this is usually subject to approval by the landlord or local zoning laws.
Technology: Tenants can also be allowed to install technology equipment such as internet and phone lines, but this should also be approved by the landlord.
ProTip Takeaway: Some leases may prohibit certain modifications for rented commercial spaces altogether, so it's important to carefully review the terms of the lease agreement before making any changes to the space.
Minor Alteration VS Major Alteration
When thinking of remodeling a commercial space, there are laid out guidelines separating minor from major alterations. Usually, these are provided in the Alterations clause, that any project that satisfies the following criteria is a minor alteration and does not need landlord preapproval. All other alterations can be considered as ‘potentially major’.
Here are different types of alteration works:
Alteration has no significant impact on other tenants. If your alteration will not affect the other tenants in the building, then the landlord will not need to be consulted.
However, if you want to have an alteration like installing an exhaust system for your light industrial processes, the landlord will need to be consulted. This is just in case it produces noise or fumes that may disturb other tenants.
Alteration does not decrease the value of the property. If an alteration will not affect the value or rent ability of the space, then it is probably not too significant to your landlord.
However, if you propose removing something like expensive track lighting, the landlord may decline the request since he may not be able to rent the space.
Alteration does not require any permits or licenses. Usually, during remodels the permits or licenses process always involves the property owner. Because going to the local authority for permits or licenses is often an expensive and time-consuming headache, the landlord ought to be consulted first.
Alteration has no impact on the structural integrity of the building. If your commercial space alteration would weaken the structure or affect the building's systems the landlord needs to be consulted. These alterations can include; removing or adding windows, knocking out a load-bearing wall, or even plumbing and electricity.
ProTip Takeaway: If your lease clause defines any of the minor alterations suggested above, you should be able to perform them without the landlord's consent.
When Should I remodel my rented commercial space?
Deciding when to remodel your rented commercial space can depend on several factors. These include your business goals, budget, lease terms, and the current condition of the space.
Here are some common situations when you may want to consider renovating your commercial space:
Lease Renewal: If your lease is up for renewal, this can be a good time to evaluate whether a renovation is necessary to improve the functionality, aesthetics, or energy efficiency of the space.
If You Can’t Get Out of Your Lease: there are many instances where tenants do not have the freedom to relocate. As a result, remodeling their rented commercial spaces becomes the only option. So if you can’t get out of your existing lease for the foreseeable future, you can make some improvements to the space to give you the features you may be seeking out in other properties.
Change in Your Business Needs: Your business needs may change over time since you first leased the space. If you've expanded your team or services, you may need to renovate to accommodate these new changes.
Outdated or Worn-out Space: If the space is outdated or utilities are worn-out, a remodel can help to refresh the look and feel of the space. This can make it more appealing to your customers and employees.
Competition: If you're facing increased competition in your industry or market, remodeling your space can help your business stand out and attract new customers.
Energy Efficiency: Remodeling your commercial space to improve energy efficiency can help reduce your environmental impact. It can also save you money on energy bills over time.
Budget: If you have a good budget for remodeling your commercial space, doing it can be a worthwhile investment in the long-term success of your business.
ProTip Takeaway: Planning ahead and working closely with your landlord or property manager can help ensure a successful renovation that meets both your needs and the terms of your lease agreement.
Pros and Cons of Remodeling A Rented Commercial Space
Remodeling is a quicker process
You could be missing out on properties that better suit your business needs
You have the freedom to design the existing space
There is an inconvenience of working in the midst of renovations
There’s a potential for more tenant improvement funds
Remodeling does not solve issues with the location, geography, or expiring leases
It is much easier to remain in the existing space
Are You Ready To Remodel Your Commercial Space?
When renting a commercial space, it is important to have a clear understanding of your rights as a tenant when it comes to a variety of issues, including tenant improvements.
It is also important that you and your landlord discuss and agree on the types of changes that will be permitted with or without approval being required. Be sure to read and understand the clause in your commercial lease pertaining to tenant improvements and renovations to avoid any potentially costly legal problems with your landlord.