What are "leasehold improvements"?

Leasehold improvements refer to the modifications or alterations made to a leased property to accommodate the specific needs and preferences of a tenant. These improvements are typically executed by the tenant with the landlord's approval and can range from simple adjustments like painting or installing new flooring to more extensive renovations such as building new interior walls or adding specialized equipment.

This concept is particularly relevant in the context of commercial real estate, where businesses may need to customize the space to fit their operational requirements. Such alterations are essential for tenants, as they help create a functional and efficient work environment that aligns with their business objectives. Importantly, leasehold improvements can be considered enhancements to the property, enhancing its usability for the tenant, even though the tenant does not own the property itself.

In contrast, the other options do not accurately represent leasehold improvements. Major renovations aimed at increasing a property's resale value are typically undertaken by the property owner and are broader in scope than what is considered leasehold improvements. Environmental adjustments relate to compliance with regulations, which don't specifically address tenant needs. Finally, upgrades to common areas generally pertain to property management decisions affecting all tenants rather than individual tenant-specific modifications.