Leasehold improvements are changes made to a rental property to customize it for the particular needs of a tenant. These improvements can be done by the landlord or the tenant and are typically specific to a commercial property. Some examples of leasehold improvements include:
- Painting
- Installing partitions or customized light fixtures
- Changing flooring
- Adding new walls
- Putting up display shelves
- Adding offices, walls, and partitions
- Interior partitions made up of drywall, glass, and metal
- Interior walls and ceilings
- Electrical and plumbing additions
- Built-in cabinetry
- Carpeting and tiles
Leasehold improvements are considered assets of the tenant if the tenant paid for them, the investment exceeds the tenants capitalization limit, and the improvements will be usable for more than one reporting period. In accounting, the tenant records the investment as a fixed asset and amortizes it over the lesser of the remaining term of the lease or the useful life of the improvement. Upon termination of the lease, all leasehold improvements become the property of the landlord.
