Tenants Doing Capital Improvements

[Dion DePaoli]

An interesting issue has come across my desk and I am curious if any other LL have bumped against a similar issue.

The general concept, tenants move in on a run of the mill standard annual rental contract. Tenants are young couple and pay on time, no real issues and have a great pride of ownership.

Now the tricky part. The tenants have such a large degree of pride of ownership, they are completing capital improvements to the property. This is above cosmetic improves and include building a deck and installing new landscaping including a large pave stone patio. The tenants have replaced siding and repaired roof issues.

In theory, great tenants. Problem that arises, the tenants are establishing an equitable interest in the property. There is no contract terms which deal with this type of event. I am almost inclined to think that most contracts do not deal with this as it is not normal.

So now contract renewal is here and conversations about increase in rent are being pushed back on, perhaps rightfully so. Note, I nor my company is the landlord, we have a relation with the tenant. Its an interesting dilemma, on one hand the landlord should welcome the improvements but on the other the landlord needs to halt this or grant some sort of concession and take action to exclude any interests in the property the tenant might be forming.

Any of you ever experienced this type of thing? Do you have provisions in your rental contracts to prevent these types of property improvements by the tenant?