MOST commercial leases are on full repairing and insuring terms. This means that the tenant must pay for buildings insurance (although the landlord obtains the policy), and must keep the property in repair, save for damage that is covered by the insurance.
Most commercial tenants are aware they have a repair obligation, but do not understand the extent of this obligation. Common misconceptions include, that the property only needs to be kept in the condition it was in at the beginning of the lease, or that ‘fair wear and tear’ does not need to be repaired.
In reality, the repair obligation is usually far more extensive. Most commercial leases use words similar to ‘keep the property in good and substantial repair’. These words have a specific legal meaning: ‘keep the property in such repair that, having regard to its age, character and locality, would make it reasonably fit for the occupation of a reasonably minded tenant’.
It is assumed that a reasonably minded tenant would not take a property that needs repair. The condition of the property at the start of the lease is, therefore, irrelevant, and no allowance is made for wear and tear. The tenant is therefore required to keep the property in A1 condition.
If the property is not in the required condition at the end of the lease, the landlord will be entitled to damages. These will be assessed by a surveyor, who will produce a schedule of dilapidations itemising all the required repairs, along with the estimated cost. The total claim can often run to many thousands of pounds.
The costs can be negotiated, and there are statutory limits on what the landlord can claim. However, to dispute the amount claimed, the tenant will need to pay for professional advice, and will often also be obliged to pay for the landlord’s advisers.
Nor can the tenant ignore the issue until the lease ends, because the obligation to keep the property in repair is ongoing. If at any time the property is not in repair, the landlord can prepare a schedule of dilapidations, at the tenant’s cost, and require the tenant to carry out the necessary repairs.
However, there are steps that tenants can take, with the landlord’s agreement, to limit their repair obligation.
If the lease will be very short, or the property is in poor condition, the tenant could seek to limit its repair obligation to making good any damage actually caused by the tenant only.
For longer leases, where obvious repairs required, the tenant could ask the landlord to carry out repairs before the lease begins. Alternatively, the landlord may agree to a rent-free period or reduced rent, to offset the cost of the repairs.
Alternatively, the repair obligation could be limited, so that the property does not need to be put into any better condition than as shown in a schedule of condition. However, anything not shown in the schedule will still be subject to the full repair obligation, so the schedule must be comprehensive. It is also not usually possible to carry out half a repair, so anything that may deteriorate further will need to be fully repaired.
Specific parts of the property, such as the roof, could also be excluded entirely from the repair obligation, especially if they are at the end of their useful life.
If you are a tenant of a commercial property, or are intending to enter into a new lease, contact Simon Chambers at Friday Legal to discuss your options on 01536 218888 or simon.chambers@fridaylegal.com
