Understanding Leasehold Improvement Agreements

A Leasehold Improvement Agreement outlines the terms under which a tenant can make alterations or improvements to a leased property. This guide provides practical examples and a template to help you navigate the process effectively.
By Jamie

What is a Leasehold Improvement Agreement?

A Leasehold Improvement Agreement is a legal document that specifies the terms and conditions related to modifications or enhancements made by a tenant on a leased property. This agreement is crucial as it defines the responsibilities of both the landlord and tenant, ensuring clarity and preventing disputes.

Key Components of a Leasehold Improvement Agreement

  1. Parties Involved: Clearly identify the landlord and tenant.
  2. Description of Improvements: Specify what improvements will be made.
  3. Approval Process: Outline the process for obtaining landlord approval.
  4. Cost Allocation: Define who will bear the costs of the improvements.
  5. Ownership of Improvements: Clarify whether the improvements remain with the property or belong to the tenant upon lease termination.
  6. Restoration Obligations: Include any requirements for restoring the property to its original condition at lease end.

Example Leasehold Improvement Agreement Template


**LEASEHOLD IMPROVEMENT AGREEMENT**  
**This Leasehold Improvement Agreement (“Agreement”) is made and entered into on [Date] by and between [Landlord Name] (“Landlord”) and [Tenant Name] (“Tenant”).**  

### 1. Description of Improvements  
The Tenant intends to make the following improvements to the leased premises located at [Property Address]:  

- [List specific improvements, e.g., installation of new lighting fixtures, flooring replacement, etc.]  

### 2. Approval Process  
The Tenant must obtain written approval from the Landlord before commencing any improvements.  

### 3. Cost Allocation  
The total cost of the improvements shall be borne by [specify whether Tenant, Landlord, or shared].  

### 4. Ownership of Improvements  
Upon termination of the lease, all improvements shall [specify whether they remain with the property or revert to the Tenant].  

### 5. Restoration Obligations  
The Tenant agrees to restore the premises to its original condition, excluding normal wear and tear, upon lease termination.  

**IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written.**  

___________________  
[Landlord Name]  
Landlord  

___________________  
[Tenant Name]  
Tenant

Practical Example of a Leasehold Improvement Scenario

Scenario: A restaurant tenant wants to renovate the space to include a new kitchen layout and additional seating.

  • Improvements: Installation of a commercial kitchen, new tables, and seating.
  • Approval: The tenant submits plans to the landlord, who must approve within 10 business days.
  • Cost: The tenant agrees to pay for all renovations, estimated at $50,000.
  • Ownership: Upon lease expiration, all improvements will remain with the property.
  • Restoration: The tenant will repaint the walls and remove any fixtures installed without damaging the original structure.

This example illustrates how a Leasehold Improvement Agreement can protect both parties by clearly defining expectations and responsibilities.