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Tenant improvements refer to the changes or alterations made by a tenant to their rented space to better suit their business needs. Under a California Agreement to Make Improvements to Leased Property, these enhancements can range from simple cosmetic changes to significant structural modifications. It is essential for both landlords and tenants to clearly outline these improvements in their agreement to avoid misunderstandings.
Leasehold improvements are categorized as Class 13 on the tax return. They are subject to the half-year rule for capital cost allowance (CCA) and they are amortized straight-line over the length of the lease (not declining balance method like most CCA classes).
Conversely, lease agreement provisions can obligate a tenant to construct or install improvements on the property. The time period for commencement and completion is agreed to in the lease agreement.
The purpose of the covenant is to protect the landlord from the tenant effecting alterations and additions which damage the property interests of the landlord. Alteration will usually be construed as anything that alters the form or construction of the building.
Leasehold improvements generally revert to the ownership of the landlord upon termination of the lease, unless the tenant can remove them without damaging the leased property. An example of leasehold improvements is offices constructed in unfinished office space.
Leasehold improvements ( LHI ) are modifications made to a leased space or leased asset to make it more useful to, or to fit the particular needs of, the tenant.
Most leases and rental agreements contain a provision that prevents a tenant from making improvements or alterations to a rental unit without getting the written consent of the landlord. If you make an improvement or alteration without consent, it generally becomes the property of the landlord if you leave.
Technically, leasehold improvements are amortized, rather than being depreciated. This is because the actual ownership of the improvements is by the lessor, not the lessee. The lessee only has an intangible right to use the asset during the lease term. Intangible rights are amortized, not depreciated.
A Lease Amendment is used to modify an existing Lease Agreement between a tenant and landlord by adding or removing clauses, or changing existing clauses. An amendment allows the parties to change the terms without having to sign a new Lease Agreement.
Terms in this set (8) Tenant Improvements. Improvements made to a leased property to meet the needs of the occupying tenant.