What defines a leasehold improvement?

A leasehold improvement refers specifically to enhancements or alterations made to a leased property. These improvements are typically undertaken by the tenant to better suit their needs or to make the space more functional or attractive for their business operations. Since the property is not owned by the tenant, these enhancements are considered leasehold improvements and are often recorded as an asset on the tenant's balance sheet.

The nature of leasehold improvements involves the understanding that the investment made in the property may benefit the landlord when the lease ends, but the improvements are made with the tenant's operational goals in mind. This distinguishes leasehold improvements from other types of property upgrades or maintenance.

Other options do not accurately capture what constitutes leasehold improvements. Upgrades to property owned by a business refer to assets that the business owns, unlike leasehold improvements, which are related to rented spaces. Improvements to publicly-owned facilities do not pertain to lease agreements and therefore do not fit the definition as they involve ownership considerations outside of leasehold parameters. Regular maintenance is about upkeep and does not constitute significant enhancements or alterations made to the property, as leasehold improvements typically involve changes that increase the value or usability of the space.