When is a door not a door? Navigating structural v non-structural changes in logistics spaces

No tenant wants to receive the dreaded phone-call alerting them that their fit-out materials have arrived and are sitting on a truck outside their premises before they have their landlord’s consent to start works. However, this undesirable situation presented itself to an industrial/logistics client of mine earlier this year.

How did we get to this point? Both the tenant and the architect who drew up their fit-out plans operated under the misconception that the works were both internal and non-structural and therefore did not require landlord’s consent under the terms of the tenant’s (yet to complete) lease. However, on a call to discuss impending lease completion (following which works were immediately planned to start) the client mentioned that, while most of the materials ordered would arrive that day, some bespoke screws required to affix metal racking to the floor of the premises were stuck in transit.

What initially appeared internal and non-structural suddenly presented itself as an entirely different beast, and we found ourselves racing to pin down an elusive landlord before the delivery trucks turned around with the materials still on board (bad) or dumped them outside the unit (worse).

The lesson here is that industrial/logistics tenants should take extra care when considering whether fit-outs comprise structural or non-structural works, as in many instances alterations that initially appear to be both internal and non-structural could arguably be viewed by a landlord as a grey area. For example, tenants and their advisers may view the installation of a door in a stud-wall as an internal, non-structural alteration.

However, installing a commercial steel door and frame may be a different story. Similarly, the installation of standalone metal racking may be internal and non-structural, but if a tenant wishes to fix the racking in a permanent position by drilling into the floor (as in our case), they are arguably piercing the fabric of the premises, pushing the works outside the ambit of what can comfortably be considered ‘internal only’.

The potential consequences of incorrectly classifying works as internal and non-structural are far-reaching. Often such works are permitted by leases without consent, but alterations extending beyond the ambit of this definition require a landlord’s explicit consent. Carrying out such alterations without consent can therefore put a tenant in breach of its lease, and the consequences can be significant, eg:

• the landlord can require the breach to be remedied by removing the alterations. Not only can this be costly, but it could render the premises unsuitable for use by the tenant if a satisfactory work-around cannot be found.
• going forwards the landlord is likely to scrutinise the tenant’s works more closely, and perhaps exercise their right to inspect the premises more regularly.
• in extreme cases, a landlord may seek to forfeit the lease. This right could be exercised at any time where a landlord has the right to forfeit the lease on any tenant breach, but could arguably be exercised even where a landlord only has the benefit of the watered down right to forfeit on ‘material’ breach, or breach of ‘material’ covenant, especially if the works compromise the structural integrity of the premises, or affect other tenants in a multi-let building.

The best approach for tenants is to maintain open lines of communication with the landlord. Sharing early iterations of fit-out plans gives landlords the opportunity to consider them in detail and raise concerns early, avoiding the risk of tricky last-minute discussions. Tenants should also highlight relevant lease provisions to the technical advisors instructed on the fit-out so the team can form a cohesive view on whether specific consent is required in each instance.

And what happened in my particular nail-biter of a situation, I hear you ask? Well, the landlord’s solicitor was fortunately tenacious (in making contact with their client to discuss the issue) and reasonable (when negotiating a last-minute licence for alterations). Next time, however, we may not be so lucky…

Hannah Irish is a commercial real estate lawyer in the London office of international law firm McGuireWoods