Leasehold Improvement

Loading the player...

What is a 'Leasehold Improvement'

A leasehold improvement consists of alterations made to rental premises in order to customize it for the specific needs of a tenant. Leasehold improvements include painting, installing partitions, changing the flooring, putting in customized light fixtures and so on. Leasehold improvements can either be undertaken by landlords, who may offer to do so to increase the marketability of their rental units, or by the tenants themselves.

Also known as tenant improvements.

BREAKING DOWN 'Leasehold Improvement'

Temporary leasehold improvements undertaken by tenants can be removed at the end of the lease period, as long as it is stipulated in the lease agreement, and removal would not inflict any damage on the rental premises or building structure.

A leasehold improvement is classified as an asset that can be depreciated by the landlord over time. While the useful economic life of most leasehold improvements is 5 to 10 years, until 2004, the Internal Revenue Code required that depreciation for such improvements occur over the economic life of the building, or 39 years. Tax legislation enacted in 2004 reduced this depreciation period to 15 years; however, the 15-year depreciation schedule is temporary in nature and must be reauthorized annually.

RELATED TERMS
  1. Leasehold

    An accounting term used to classify an asset on a company's balance ...
  2. Landlord

    A real estate owner who rents or leases land or a building to ...
  3. Co-Tenancy Clause

    A common clause in retail lease contracts that allows tenants ...
  4. Double Net Lease

    An agreement in which the tenant is responsible for both property ...
  5. Ground Lease

    An agreement in which a tenant is permitted to develop a piece ...
  6. Sublease

    A real property rental agreement between an original tenant and ...
Related Articles
  1. Economics

    What is a Leasehold Improvement?

    A leasehold improvement is an alteration made to a rented space that customizes the space for the tenant.
  2. Home & Auto

    The Complete Guide To Becoming A Landlord: Landlord-Tenant Relationship

    A lease establishes the relationship of landlord and tenant and is both a conveyance of a possessory estate in real property and a contract between the parties. Through the lease, the tenant ...
  3. Budgeting

    3 Things to Consider When Renting By the Room

    Although renting by the room can increase returns on rental property, it does come with a few caveats.
  4. Home & Auto

    4 Things Landlords Aren't Allowed To Do

    Whether you're a landlord or a tenant, you need to know the rules.
  5. Retirement

    Could Being a Landlord Pay for Your Retirement?

    If you have the money to buy them and the energy to run them – or the funds to pay a good manager – rental properties can help pay for your retirement.
  6. Economics

    How Does a Modified Gross Lease Work?

    A modified gross lease is a rental agreement where, in addition to their rent, tenants pay a share of other costs associated with the property.
  7. Home & Auto

    The Complete Guide To Becoming A Landlord: Finding Tenants

    A challenge that most landlords face is finding reliable tenants to fill their rental properties. Ideally, a tenant will be willing and able to pay his or her rent in full and on time each month, ...
  8. Home & Auto

    The Complete Guide To Becoming A Landlord: Becoming A Landlord

    Financial BenefitsAs a landlord, you have the opportunity to earn income from your real estate investment. While your property ideally appreciates in value over time, the income that you receive ...
  9. Home & Auto

    Top 5 Ways to Protect Yourself Against Problem Renters

    Renting seems like the perfect way to mitigate the costs of an extra home that won’t sell; the intended course of action when a property was purchased for an unbelievable price, or many of the ...
  10. Home & Auto

    Tips For The Prospective Landlord

    Investing in rental property can generate serious income, but there's more to it than collecting rent.
RELATED FAQS
  1. What is the process for a building owner depreciating leasehold improvements in a ...

    Learn what leasehold improvements are, and the process by which a building owner can depreciate leasehold improvements that ... Read Answer >>
  2. What are examples of typical leasehold improvements?

    Learn what alterations are considered leasehold improvements, and find out which alterations are typically found in commercial ... Read Answer >>
  3. How long can a building owner or landlord depreciate a leasehold improvement?

    Learn about the different depreciation and amortization rules pertaining to leasehold improvements for tax basis and GAAP ... Read Answer >>
  4. What are the differences between single, double and triple-net leases?

    Learn the ins and outs of net lease agreements, including the key differences between single net, double net and triple net ... Read Answer >>
  5. Do landlords set up escrow accounts for their tenants' security deposits?

    Learn when and why landlords place rental property security deposits in separate escrow accounts to make sure the money is ... Read Answer >>
  6. Does homeowners insurance cover my tenants' belongings?

    I have two houses that I use as rental properties. I want to insure the houses, but I was wondering if... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center