Commercial leases – what tenants should know about repair issues

Formal written contracts can secure the future of your business
December 17, 2014
All Tallents Articles Commercial law

Landlords will want to keep the position as straightforward as possible; they will expect their tenants to repair and maintain the property, and for the costs of repairs to be in addition to the main rent payable to the landlord under the lease.

For most landlords, this issue comes into focus most sharply at the end of a lease because they want to ensure that they get the property back in the required state of repair and condition so that it can be re-let as quickly as possible.

Tenants – always check lease wording to avoid financial penalties

That approach puts the onus on tenants to investigate, consider and, if necessary, attempt to negotiate on any issues that could cause them difficulty.

Commercial law at Tallents Solicitors in Newark

Commercial law at Tallents Solicitors in Newark

Wording such as ‘The tenant must keep the property in good and substantial repair and condition,’ might seem simple and straightforward, particularly compared to some of the other provisions in a typical commercial lease – but tenants should be aware that this may not always be the case, and should be mindful of possible issues.

In the worst case scenario, an inappropriate or badly negotiated repair obligation in a lease can end up costing a tenant substantial sums (possibly without warning), which could have a disastrous impact on the tenant’s otherwise successful business.

Here are two critical points for tenants to consider:

Scope of repairing obligation: Is the tenant responsible for the whole of the property, including structural parts, roof, foundations etc., or just the interior? If interior only, is the tenant obliged to contribute towards repair of the structural parts through a service charge (see previous article ‘An explanation of service charges’)?

The usual approach is that if the tenant’s lease is of the whole of a building then the tenant would be expected to take on repairs of the whole, including the structure. Where the lease is of part of a larger building then it is more usual to see the tenant responsible for the interior of their part, but paying towards repair of the structural parts through a service charge.

Required standard of repair: Is the tenant required to put the property into a better state of repair than it is in at the date of the lease? Can any limitations be introduced, for instance in relation to known defects?

A typical form of wording might state that the tenant is to keep the property for which it is responsible “in good and substantial repair”. Tenants should be cautious in relation to this form of wording because it means that they will assume responsibility for any existing disrepair.

Tenants – seek professional advice before agreeing terms

There are a number of practical steps that a tenant should take in relation to these issues before agreeing terms for a commercial lease.

Tenants should consider in detail the existing state of repair of the property, and whether they require professional advice from a surveyor in this respect.

This is particularly important where the tenant is expected to take on responsibility for the structural parts of a building. Without gaining a full understanding of any issues it will be more difficult for the tenant to make informed choices about these issues going forward.

Tenants – consider and raise issues with the landlord

Any issues that arise from the initial inspection phase should then be considered and raised with the landlord. There are a number of approaches that can be taken to lease drafting in this respect:

A common approach is to adopt a form of wording which states that the tenant must keep the property in no worse a state of repair and condition than as at the date of the lease. The state of the property as at the date of the lease can then be evidenced in a series of photographs showing each item of disrepair for which the tenant does not intend to accept liability.

Some tenants might negotiate deductions from the rent in order to cover the costs of necessary works – for instance, if the roof of a property needs works valued at £5,000 in order to bring it up to standard then the parties might agree a reduction in the first year’s rent to cover the cost of the works so that the landlord secures a new tenant but the tenant is not penalised for pre-existing disrepair.

Alternatively, certain repair issues might be excluded from the tenant’s responsibility altogether – for instance the lease might state that the tenant shall not be responsible for any damage caused by pre-existing damp at a property. In these instances, tenants should be aware that just because they are not responsible for remedying the specific matters noted in this way does not necessarily mean that the landlord is under any obligation to undertake any remedial works either.

Tenants should consider their options and seek appropriate advice early in the process; it is usually preferable to agree an approach from the outset rather than to agree terms and then seek to re-negotiate at a later point in the process (see previous article ‘Forewarned is Forearmed’).

Tenants – beware when taking over from an outgoing tenant

Another point to bear in mind is that where a tenant transfers an existing lease to a new tenant they should give some thought to whether the outgoing tenant has kept the property in the required state of repair.

If not, then the new tenant will step into the shoes of the previous tenant and will assume responsibility for any disrepair going forwards, meaning that appropriate provisions should be negotiated in this respect.

As with so many of the key areas in commercial leases, the most important thing is that the parties should satisfy themselves that they understand their respective obligations and feel that an acceptable balance has been struck.

Time spent in getting this right at the outset could be a valuable investment down the line when considered against the possible consequences of getting it wrong.

Tallents’ commercial property department has experience in advising both landlords and tenants regarding all aspects of commercial lease negotiations and the landlord and tenant relationship. In the event of a dispute then our specialist litigation solicitors can help guide clients through the process.

For more information please contact Tallents Solicitors on 01636 671881.

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