Who owns the improvements constructed by a tenant is often a critical issue when a lease terminates. If a lease does not address the issue, the relevant Louisiana Civil Code Articles will apply. Effective January 1, 2005, Louisiana revised the Civil Code Articles regarding leases. The revised Articles specifically address improvements made by tenants and govern if the lease is silent on the issue.
Civil Code Article 2695 now specifically addresses the removal of improvements made by tenants. The Article grants the tenant the right to remove any improvements the tenant has made even if the tenant made the improvements without the landlord’s consent. If the tenant does not elect to remove the improvements and restore the leasehold premises to its prior condition, the landlord may: (1) keep the improvements and reimburse the tenant for the lesser of: (i) the enhanced value of the improvements, or (ii) the cost of the improvements; or (2) the landlord may demand that the tenant remove the improvements within a reasonable time and restore the leasehold premises to its original condition. If the landlord demands removal and the tenant fails to remove the improvements, the landlord may: (1) have the improvements removed and restore the leasehold premises to its former condition at the tenant’s expense; or (2) keep the improvements, in which event the landlord is not obligated to reimburse the tenant for the improvements.
A lease should always address whether or not a tenant has the right to construct improvements and the tenant’s right or obligation to remove the improvements once the lease terminates. If the lease is silent regarding the improvements, the outcome may be different from what the parties originally anticipated.