The tenant may need funds to construct special modifications to its lease space or to buy additional equipment (business machines, medical or dental equipment, built-in display cases, walk-in freezers, etc.) to be installed in or attached to its leased premises.
The modifications and/or additions constitute leasehold improvements.
“Leasehold Improvements” is a broad term that refers to everything from a walk-in refrigerator to a 25-story office building. Financing of a tenant’s improvements is done in connection with a commercial lease of office or retail space. Leasehold improvements can be either fixtures (perfected on at the Texas county level) or equipment (perfected on under the UCC).
Where the landlord and the tenant each have financing, it is recommended that an agreement be negotiated in advance regarding the removal of the tenant improvements in the event of the tenant’s default under the lease.