Leasehold improvement is a fairly common form of property customization, and is becoming even more popular as the rental market continues to grow. Under certain leases, landlords and tenants may agree to improvements that change the way the property appears or functions. Improvements that clearly benefit only the tenant are generally accepted as leasehold improvements and are tax deductible to the tenant.

Leasehold improvements typically fall into one of two categories. The first, called repair and maintenance improvements, are physically done on the property and provide aesthetic enhancement but no new functional benefit. Examples include painting, replacing light fixtures and replacing carpets. These improvements add value, but the added value is not permanent since it is not permanent, since these kinds of improvements can be reversed without much difficulty.

The second type of leasehold improvement provides a new functional benefit to the tenant. These types of improvements include insulation, soundproofing and waterproofing and making structural changes to the property, such as adding additional rooms or walls. These improvements will generally have a lasting effect and may even increase the overall value of the property.

For tenant improvements to be considered a legitimate leasehold improvement, both the landlord and tenant must agree to the changes and sign off on them in writing. Most lease agreements include a clause that spells out what types of improvements qualify as leasehold. In addition, landlords often require tenants to pay for the improvements upfront and are only reimbursed for the costs if the tenant moves out.

Leasehold improvements can be an excellent way for tenants to customize their rentals and add permanent value to the property. For landlords, these improvements can lead to increased rent payments and attract desirable tenants. However, it’s important to remember that there are numerous legal considerations involved in entering a lease agreement and making leasehold improvements, so it’s best to consult a professional.