Lease improvements: Take it with, or leave behind

Friday, April 21st, 2017

Question: “We’ve been renting a house for a few years. My wife and I had made several improvements to the house and garden. Now I’m being transferred and we have to move, but am wondering what’s to happen with all the improvements to the rental property. May we take it with us or does the landlord need to compensate us for it?”

Answer: This is a complex question that doesn’t necessarily have a short answer. The first step is to study the rental agreement to determine if it specifically states what the respective rights and duties of the parties are when it comes to lease improvements. Parties can decide at the time of conclusion of contract how they’d like to handle the issue of improvements, the type of permissions the landlord must give, whether the tenant may remove the improvements, which improvements may be removed, what the position is in case of damage to the property during said removal, and whether compensation is payable where improvements cannot or may not be removed.

If the contract requires permission to bring about improvements and the landlord did not grant such permission, the improvements will become the property of the owner once the contract expires, while the tenant will have no claim for compensation against the owner. If the landlord had indeed granted permission, yet the contract isn’t clear about what’s to happen to the improvements when the contract expires, it is important to note the following:

A tenant may only remove improvements during the existence of the rental agreement – excluding necessary improvements – and may not remove any improvement after expiry of the contract, for then the owner of the property also becomes the owner of the improvements. This includes new trees and plants that have been planted.

Furthermore, the improvements have to be removed in such a way that the property is not damaged, and left in the same state in which the tenant received it. When it comes to establishing whether the particular improvement may be removed it will depend on the nature of the improvement, as well as the manner in which it has been attached and the intended purpose of the particular improvement.

If the improvement is to become the property of the landlord, it has to be established whether compensation is payable, and if so, how much. Any compensation will usually be calculated with reference to the cost of the material that’s been used, excluding labour, and whether the value of the property has increased due to the improvement – whichever is the least. Keep in mind that no compensation is payable for luxury improvements.

Our law regarding lease improvements is comprehensive and complex, which is why it is so important that the rental agreement clearly stipulates how improvements should be dealt with. In your case my advice is to discuss the rental agreement and all relevant improvements you have made with an attorney so as to determine what the respective rights and interests in the rental improvements are. What’s important to remember though, is to not summarily assume that the improvements may, or can, be taken with you.

 

Source: BDP Attorneys

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