Examples of what qualifies as an alteration to an industrial building, and a few reasons so many alterations are made without the proper permits.
Last week we discussed the issue of utility installations and trade fixtures, the definition of which can be confusing and potentially expensive.
The third component of this aspect of leasing is Alterations. They are described as any improvements to the building that are not defined as utility installations or trade fixtures.
- Utility Installations vs. Trade Fixtures: Double Trouble for Tenants
- Industrial Building Maintenance – What Tenants Need to Know
- 3 Ways to Mitigate Maintenance Costs
Previous Posts in This Series:
Alterations include adding office space, mezzanines, HVAC components, showrooms, restrooms and other interior improvements.
Virtually every lease contains language requiring the tenant to get the landlord’s written permission to build out any alterations other than incidental, low-cost items. If you intend to construct alterations or demolish existing alterations, you will be required to submit plans and specifications along with building permits if the work requires them pursuant to local regulations. And, therein lies a serious problem.
Though we don’t have statistical verification, our educated guess is that nearly half of the alterations and utility installations that exist in today’s industrial inventory are made without a permit from the controlling governmental agency. We know that sounds like a big number, and it is, but there are several reasons why this is likely the case. Here are a few of those reasons in no particular order.
1) Alteration and utility installation permits take time and add significant cost. Often, tenants are in a big hurry to get up and running in their new spaces and if the landlord is involved in the construction, he wants to move as quickly at the lowest cost in order to collect rent as soon as possible. Tenants who are paying the bill are just as time and cost-sensitive. After all, the alterations will end up becoming the Landlord’s property when the lease ends. So, keeping cost down just makes good sense.
2) In many instances the existing interior improvements were not built with the proper permits. Seeking a permit for improvements attached to unpermitted improvements is a losing proposition. No matter what city it is, the people in charge of such things will not look the other way and issue permits for the new work. Rather, existing improvements would be inspected for code violations and are subject to either removal, retrofit and/or penalties if discovered. Fortunately, most so-called “bootlegged” improvements are built to code just in case, but a tenant or landlord could end up finding out the hard way.
3) Office improvements are a particularly tough issue. Adding office changes parking requirements and almost all industrial buildings are built with maximum lot coverage and the minimum number of required parking spaces. So, adding even 500 square feet of office within a 10,000-square-foot building may not be allowed.
In our next post, we will address how the parties to the transaction can protect their interests when it comes to building permit issues and constraints on time. Stay tuned, or sign up for email updates below: