Sometimes, to make accommodations for the property, the landlord may need to make certain changes that help the leaseholder feel more comfortable. These changes are called leasehold improvements. They can vary, since people have different needs.
In this article, we’ll look at some common leasehold improvements, compare them with regular maintenance, discuss who typically pays for them, share a few tips, and more. Read along and get familiar with this important topic.
Main Takeaways
- Leasehold improvements are custom changes made to rental spaces—like adding walls or upgrading lighting—to better suit a tenant’s needs.
- Who pays depends on who requests the improvement, whether it adds long-term value, and legal considerations like Fair Housing rules.
- These improvements are often considered capital assets and may require landlord approval, licensed contractors, and lease review before starting.
Common Examples of Leasehold Improvements
As a property management company in Washington, D.C., we’ve come across all sorts of leasehold improvements — each tailored to help tenants get the most out of their space. While every situation is slightly different, a few types of improvements tend to show up regularly.
Here are some common examples you might come across:
Adding or Removing Walls
You’ve probably heard people refer to these improvements as build-outs, and this is a big reason why. Tenants might want an extra office, a meeting room, or just a more open space. So, putting up or knocking down a few non-structural walls helps shape the space into what works best for them..
Upgrading Flooring
Sometimes it’s as simple as swapping out the carpet for something like hardwood or tile, depending on what the tenant prefers or what fits their business. It could be about looks, ease of cleaning, or simply personal taste — but small changes like this make a big difference.
Lighting Changes
Lighting is one of those things tenants often tweak to fit their style or needs, and it’s pretty common. Brighter fixtures might work better for a retail shop, while softer lighting feels right for a wellness space.
Installing Custom Cabinets or Storage
Tenants often look for extra storage to make the space work better for them. That’s where extra shelves, cabinets, or storage units are built to fit how they plan to use the space on a day-to-day basis.
Electrical or plumbing adjustments
As technology evolves, tenants may need additional outlets, updated wiring, or modifications to the plumbing to accommodate specific equipment or appliances. So, you should always catch up with the times to keep your property competitive.
Accessibility Upgrades
Sometimes, it’s simply about ensuring everyone can move around and use the space easily. That could mean adding a ramp, installing handrails, or widening doorways so people with disabilities can enter and exit without difficulty.
Leasehold Improvements vs Repairs vs Maintenance
How different are leasehold improvements, repairs, and maintenance? Sometimes it can be confusing. So, to make it easier, here’s a simple table that breaks down the differences.
Maintenance |
Repairs |
Leasehold Improvements |
| Regular floor waxing and grout cleaning | Fixing cracked tiles or replacing damaged carpet | Installing new flooring to fit the tenant’s style |
| Servicing HVAC regularly | Fixing broken HVAC units | Upgrading to a brand-new, energy-efficient HVAC system |
| Cleaning gutters, washing windows, and routine landscaping | Repairing leaks in the roof or plumbing | Fully replacing the roof or remodeling bathrooms |
| Painting for upkeep | Patching holes or fixing wall cracks | Adding or removing non-structural walls to reconfigure space |
| Routine checks on lighting and appliances | Fixing faulty wiring or broken switches | Upgrading lighting systems to smart controls or modern designs |
| Regular door maintenance | Fixing broken doors or handles | Widening doorways for accessibility or adding custom entryways |
Who Pays for Leasehold Improvements In a Rental
When it comes to rentals, leasehold improvements don’t follow one simple rule — who pays depends on what the improvement is, who benefits, and who wants it.
If the Landlord Initiates It
Sometimes, the landlord proactively decides to make value-adding upgrades before leasing the property. This could include installing new flooring or upgrading kitchens. In these cases, the landlord covers the cost because the improvements are meant to attract tenants and increase the property’s value.
If the Tenant Requests It
Other times, tenants may ask for changes to better fit their lifestyle or needs — for example:
- Adding built-in shelves
- Upgrading lighting
- Installing custom closets
- Minor layout changes
In most of these cases (where the request is not related to a disability), landlords have the right to accept or decline. If they approve the request, they may:
- Pay for it entirely (if they see it as adding long-term value)
- Split the cost with the tenant
- Require the tenant to cover the full cost
It often depends on how permanent the improvement is and whether future tenants would benefit from it. That said, if the tenant makes a request under the Fair Housing Act, that law will decree who pays for what, and the landlord’s discretion to decline is significantly limited for reasonable and necessary modifications.
Reasonable Modifications Under the Fair Housing Act
Under the Fair Housing Act, when a tenant with a disability requests reasonable modifications, such as ramps, grab bars, or wider doorways, landlords are generally required to allow them under the Fair Housing Act, provided the modifications are necessary due to the disability and are reasonable.
Landlords can request reliable documentation to verify the disability and the need if not readily apparent. However, in most cases, the tenant pays for the cost of the modification. The tenant may also need to restore the unit to its original condition when moving out, unless the modification doesn’t interfere with future use, and the landlord can generally require a reasonable escrow for restoration costs.
If the property receives federal funding (like public housing) or is otherwise subject to Section 504 of the Rehabilitation Act, then in some cases, the landlord may be responsible for the cost. But in private residential rentals, it’s generally the tenant who pays. Landlords cannot dictate the specific contractor or design unless safety, quality, or structural integrity is demonstrably at risk.
Are Leasehold Improvements Considered Assets?
Yes — leasehold improvements are usually considered assets. Let’s break it down so it’s easy to understand.
When a landlord or tenant pays for a leasehold improvement — like adding walls, upgrading lighting, or installing built-in cabinets — they’re investing in the property to make it more functional or valuable. That money isn’t treated like a regular expense that gets written off all at once. Instead, it’s recorded as an asset.
For accounting and tax purposes, leasehold improvements are typically capitalized, meaning the cost is spread out (depreciated) over time. This allows property owners to claim a portion of the improvement cost each year rather than taking the full deduction upfront.
For landlords, recording these improvements as assets reflects added value and may bring long-term tax benefits. For tenants (mostly in commercial leases), improvements they pay for might also be treated as assets, depending on who owns the changes after the lease ends.
Tip: Always review your lease and consult a tax professional before making major changes — who pays can affect who gets the tax benefits.
Tips for Tenants Planning Leasehold Improvements
Before you start planning any improvements, it’s good to remember that even though you’re renting the space, there are limits to what you can change. So, you always should ask for approval before making any alterations to avoid problems down the road. That’s why we’ve put together these simple tips to help you handle improvements the right way.
1. Always Check the Lease Agreement
Most leases include specific terms about making improvements. Before starting any work, make sure you know:
- Who’s allowed to make changes
- What approvals are required
- Who covers the cost
- Whether you’ll need to restore the space to its original condition when you move out
2. Understand Who Owns the Improvements.
In most cases, once improvements are made, they stay with the property. Yes, even if you paid for them. So, be clear on what happens when the lease ends.
3. Use Licensed Contractors
Many landlords require that licensed and insured professionals are the only ones to do work on their property. And even if they don’t require it, you shouldn’t put something this costly in the hands of someone with little experience. Hiring an experienced pro may cost you more now, but it almost definitively will save you plenty of hassle (and your security deposit!) later.
4. Document Everything
Always obtain written approvals before starting any work. Keep copies of plans, approvals, and receipts — it helps avoid disputes later.
Can leasehold improvements be removed by the tenant?
In most cases, no. Leasehold improvements typically stay with the property after the tenant leaves. Once something is permanently attached or built into the property, such as new walls, built-in cabinets, or upgraded flooring, it usually becomes part of the landlord’s property.
However, there are exceptions. Some lease agreements may allow tenants to remove certain improvements if:
- The landlord agrees in writing beforehand
- The improvement was clearly temporary or easy to remove without damaging the property
- The lease requires the tenant to restore the space to its original condition
This is why it’s so important to review your lease carefully before making any improvements. Clear agreements up front can help you avoid confusion when the lease ends.
Need Help Navigating Leasehold Improvements? Call BMG
Leasehold improvements are tenant-specific upgrades—like new walls, lighting, or storage—that adapt a rental space to better meet individual needs. Who pays and who benefits depends on lease terms, legal factors like Fair Housing, and whether the changes add long-term value to the property.
Leasehold improvements may look simple on paper, but as you’ve seen, who pays, who approves, and how things are handled can quickly get complicated. At Bay Property Management Group, we guide landlords and tenants through the fine details of leasehold improvements — from reviewing lease terms to navigating who’s responsible for what. You don’t have to sort through it all alone. Reach out to us today, and we’ll help you make sure your next improvement project stays smoother and simpler.
