Posted: Tuesday July 4, 2023
It is almost universal to find a repair clause within any commercial lease. The obligations and standards can vary significantly. There are some quite common types of clause and tenants are often ill prepared.
Below we consider:
This is often the first step in tenants misunderstanding lease obligations. It is a common misconception that a commercial tenancy is similar to that of a residential tenancy. A residential lease will typically see the landlord liable for the repair and upkeep of the building. In the case of a commercial property, the liability for repair typically rests with the tenant excepting some variations which are explained further below.
There can be complications and ambiguity. At the outset a landlord can sometimes be responsible for carrying out works in advance of a tenant moving in, this is often by agreement and not necessarily recorded. A preceding tenant may agree to undertake works, but then when the property is taken on, the work is not complete or to satisfaction of the new tenant.
If a lease has been taken over, typically referred to as being assigned, the outgoing tenant may have a business contract with the new tenant to undertake works (or pay some compensation). It is these complications which need unpicking, but is absolutely fundamental to make sure they are clarified. Failing to resolve these at the outset will often necessitate protracted end of lease disputes.
Broadly speaking the what is considered as being the demise. The demise is the technical term for, in essence, what the tenant actually pays rent for, the building or space within a building.
What the tenant is actually leasing can come as a surprise for tenants.
In some instances, the tenant may purely be renting a shop unit, with no obligations to repair or maintain the exterior parts of the building or the structure. With retail units a common exception is that a tenant would often be responsible for the shop front and potentially any windows or doors.
There can be leases where an entire building is demised to a tenant in which case the entirety of that building is liable for repair and maintenance. This is inside and out.
There are circumstances when particular elements can be excluded. So a well advised client may have had a survey to determine a roof was in poor repair and they should avoid the liability. In this case the lease may place the onus on the landlord.
The when to repair is more complicated than maybe expected. At the end of a lease a landlord will often have served on the tenant a Schedule of Dilapidations. The Schedule of Dilapidations will identify what works are needed at the end of the lease for the tenant to leave the property in the condition which is commensurate with the lease requirements.
In the usual course of a lease the tenant will undertake some repairs as soon as they take the building on, other repairs which aren’t critical for their business uses (or too costly) will be put back or indeed never carried out and will only be picked up right at the end of the lease in the Schedule of Dilapidations.
Where there can be hiccups in this usual arrangement, a building may deteriorate during the term of a lease and the landlord may seek to have repairs carried out. This can result in an Interim Schedule of Dilapidations or notice for repair. There are legal frameworks for this, the Law and Property Act 1925 has provisions.
Usually defects are allowed to worsen over time, making a minor issue a significant issue
It may not simply be a case of negotiating with the landlord, if notices have been served, the timing for negotiation may be limited if the relationship is poor. Depending on the timing the landlord may seek to pursue the undertaking of the repairs through the courts, seeking an injunction for the works to be carried out, or to allow the landlord to enter the building and undertake the works themselves and the costs to be borne by the tenant. There is also the possibility that a landlord may seek to have the lease forfeited forcing the tenant to leave, but not necessarily relieving them of the costs of the repairs.
So what is clear is that usually the big cost of repairs will quite often be at the end of the lease. There are circumstances where repairs may be of such concern to a landlord, if it impacts their investment value, they may seek redress mid term.
Landlords’ motives, in the best cases it will be simply to protect their investment and third parties, in other cases it can be simply down to human nature and personal differences arising between a landlord and a tenant. It may be a desire for the landlord to seek the end of the lease early and this is undertaken by persuading the tenant through means of financial pressure.
The standard of repair is a vast subject. There is a great deal of case law which deals with court cases that have considered everything from the condition of industrial roof lights, carpets and air conditioning systems. Annually the case law and precedence increase and with the moving on of technology and a greater range of buildings being let, what can be considered repair of an element may change overtime.
An example of a poor repair, in this case the tenant paid twice, once for poor performance and then the rectifying works by the landlord
The most common phrases that we come across are akin to “put and to keep in good condition”, “to keep in good and tenantable repair”, etc.
There are cases to argue that each of the above may mean exactly the same thing. One of the absolutely critical aspects for a tenant to understand is that simply because an element of a building, or a building as a whole, could be considered in disrepair at the outset of a lease, this by no means limits what the tenant should expect as their own repairing obligations.
The first example of “to put and keep in repair” does have the implication that if something is disrepair at the outset of a lease then there this should be put into repair.
A good illustration of repairs that fall below the standard in most situations
What has changed in recent years is the consideration of the age, character and locality of a building. An extreme example would be an office building, rented 25 years previously, in what was the beating heart central business district, but in the preceding 25 years is now on the outskirts of much more modern office developments. The assumption was that the standard condition would vary and would take into account the age and character of the building and of the local area. This has changed and there is case law which makes assumptions an area of risk, a building becoming older doesn’t necessarily mean a tenant can expect a lower bar in respect of the standard of repair.
Schedules of Condition are feasibly a great benefit to a tenant. A tenant can take a building on where there may be items of disrepair, such as a deteriorated roof which, under the terms of a normal lease, at the end of the lease term a landlord could turn around and say that the roof needs to be put in repair.
To protect themselves, a well-informed tenant would record the condition and limit the repair liabilities by virtue of the Schedule of Condition. This can save thousands of pounds in claims and it is something which should be considered in the majority of new leases. It is certainly not the case that for all leases it would be appropriate. On a brand new modern building, a Schedule of Condition could simply be used to highlight, in all the more startling contrast, the deterioration that has occurred under the stewardship of a tenant.
With Schedules of Condition there is always the possibility for defeat to be snatched from the jaws of victory. We have come across leases where a repair clause will make reference to a Schedule of Condition, the wording often being similar to the following:
‘The Tenant is to keep the property in good repair but in no better condition than as evidenced in the attached Schedule of Condition.’
In this event it is not uncommon to find the Schedule of Condition missing, never carried out or alternatively a Schedule of Condition of such low quality that it simple does not consider the legal purpose of the Schedule of Condition.
A missing Schedule of Condition is problematic to say the least, the textbook case law approach to the situation is for surveyors look back in time and consider what the condition of the building would have been at the outset. This is clearly imperfect and tricky, there are often differing views of the surveyors as to the history and what has occurred. In this instance, not only can you then argue about the standard of repair and what should be repaired, but you can then have an argument over repairs several years earlier, often involving a number of dimensions.
Where matters can go wrong is when specialist advice is not taken. When we refer to specialist advice this would be considering solicitors who specifically deal with property or at least have the experience of this. The wording of the repair clause and how it refers to the Schedule of Condition can have a dramatic affect on the outcome. The two examples below are typical paraphrased clauses that one could expect.
“The property will be kept in repair but in no better condition than evidenced in the Schedule of Condition.”
“The property will be kept in repair but in no worse condition than evidenced in the Schedule of Condition.”
On the face of it and in isolation, for many tenants reading either of these would appear not necessarily to have any great significance. There would be a nice warm feeling that a Schedule of Condition was in place and that it had been reassured by a surveyor or solicitor that this was exactly what was needed. Where it goes awry though is when you consider the wording and how that actually works in practice.
If the reference is the building has to be put into no better condition than evidenced in the Schedule of Condition this really does help the tenant, it sets the bar fairly low. It means that at the outset of the lease, taking the example of a roof, that roof doesn’t have to be handed back to the landlord in any better condition. So for instance if a roof did have some signs of corrosion and some disrepair, broadly speaking the tenant doesn’t have to hand back a roof that is in perfect condition. Conversely if the wording states no worse condition then conversely the bar is set really quite high. Instead of being something to limit the liability, a detailed Schedule of Condition could actually highlight where there have been changes in the condition. Relatively minor damage could be found to be deterioration during a tenant’s term.
The above should provide some insight into just what can be considered under the repairing clause. This is just one part of the intricacies of a commercial lease. It is usual for the repair clause to be just three or four lines of a document, which maybe sixty or seventy pages; but has a potential to cost the tenant more than all the rent that they will pay during their tenancy.
Property is a significant asset for numerous businesses, while for some, it represents their most substantial liability. It is vital to prioritize the repair and maintenance of a property to preserve its value. Additionally, for leasehold properties, this ensures adherence to responsibilities as a landlord or tenant.
At Dabinett, we excel in identifying defects and determining the most suitable solutions for repair work. Our network includes a range of approved contractors, each specializing in various fields, capable of competitive tendering, and maintaining excellent health and safety standards.
If you require our repair services, please contact our friendly team today
In the next guides we consider the decoration liabilities of a lease for the tenant, the alterations that a tenant may carry out during a lease, the break clause (early exit options) which is sometimes included in leases and clauses dealing with statutory requirements.