Lease hold improvements on Commercial property

[Jason Weber]

I recently purchased a multi tenant business office building. One tenant who has been there for 15 years emailed me stating that his carpets are worn down, always look dirty, and have some areas of balding. He wants me to replace his carpets in his office.  I'm thinking the the he and his staff have been tearing up the carpets so I shouldn't just replace them for nothing in return right?  It's essentially a leasehold improvement which would make the unit a bit more desirable and valuable.  So, I responded that he could replace his own carpet but I would have to approve of the contractor and the material used, no linoleum.   Or, I would contract it out and pay for it out of my expense but in return I would need to raise monthly rent and possible secure a lease contract from him for a longer period of time.  What are your thoughts on how to handle this tenant?

Thanks for all responses.

Jason

[Cor Bay]

Depends on the competition in the market.

If there is little vacancy in the market you have the upper hand.

Overall I prefer to keep my property up and tenants happy, but also don't like to give away anything I don't have to.

I would say you eat 50% and he eats 50% as Tanh suggested. Or you do it and raise his rent enough to recover it in 2-4 years plus a little bit for "financing it" over the 2-4 years.

Give the tenant options and let them pick.