If you are an existing business owner who operates from leased business premises, then you should be only too aware of the extent of your repairing obligations under your lease. If you are setting up a new business and have never ventured into the world of leasing commercial property, understanding your repair and maintenance obligations at the outset will be one of your most important considerations.
The general maintenance and upkeep of business premises is typically the biggest liability tenant’s face, along with the payment of rent. When advising clients, we often go to great lengths to explain the repairing provisions in a lease and this post seeks to highlight some of the most frequent issues and considerations that arise during a lease transaction:
So what is a tenant responsible for exactly?
There is no simple answer and it will always be down to whatever you can agree with the landlord depending on the type of property you are taking on. However, a tenant’s repairing duties will generally amount to one of the following:
- Full repairing liability – a tenant will generally be expected to assume liability for repairing the whole of the property (i.e. both internal and external elements and structural and non-structural parts) when the property is a standalone unit or where the tenant takes a lease of a whole building.
- Internal only repair – if the property is part of a wider centre, complex, or is an office or shop which forms part of a building, then the usual position is that the tenant will assume responsibility for repairing the internal parts of the property only, with the landlord assuming liability for repairing the external and structural parts of the building. However, this is not always the case and a tenant should not assume they are free from liability for repairing the external or structural parts of a building. Whilst the landlord may assume responsibility for arranging the repairs to the structure or external parts of a buildings (or indeed any common parts shared with other tenants), the landlord will generally recover any costs from the tenants by way of a service charge. The cost will often be split between the tenants accordingly to a calculation of the square footage of the property, or as a fixed percentage, but other methods can be used. Frequently, the frontage and any shop fascia will also be down to the tenant to repair and maintain, despite the fact they are external.
Should I get a survey?
It will be a commercial risk not to have a survey undertaken at the outset but there may be circumstances where a survey is not necessary. In general, you are likely to spend a considerable amount of time in your business premises and so our advice is to make sure it is fit for purpose and you are strongly encouraged to seek advice from a qualified surveyor if you have concerns over the state and condition of the property. A surveyor will be able to undertake a detailed inspection and highlight any areas of concern for you as a tenant, particularly if the property has been previously let and is in a state of disrepair. You may well address some of those issues if you are intending to fit out the property with your own equipment but the extent of disrepair may extend beyond what the eye can see. As lawyers, we are not qualified to give advice on the state and condition of the property and the landlord is not under a duty to disclose physical defects which you can ascertain from carrying out an inspection.
Can I limit my liability and obligations?
Careful negotiation and drafting in the lease can help to limit your repairing liability as a tenant if there are particular areas of concern. Another option to consider is the preparation of a Schedule of Condition and agreeing that with the landlord. The landlord is not obliged to agree to the preparation of a Schedule of Condition but if the property is in a particularly bad state then it is strongly advised.
A tenant can undertake this task on their own but employing the services of a qualified surveyor is usually best. The preparation of a Schedule of Condition will generally involve a surveyor carrying out an inspection of the property, making a list and taking detailed pictures of the condition of the property and putting those together into a formal schedule, which is then attached to the back of the lease. The lease will then refer to the Schedule of Condition and seek to limit the tenants repair and maintenance obligations by reference to the same. For example, the schedule should indicate all areas of disrepair in the property before the start of the lease and the lease itself will indicate that the tenant should not be responsible for putting those particular disrepairs right. Any items which are not covered, however, will fall to the tenant so the detail of a Schedule of Condition is essential to ensure it works in practice.
What happens during the lease?
You will generally be responsible for maintaining the property throughout the duration of the lease term, which may include specific obligations to decorate the same at particular intervals or as often as is necessary. A landlord will often reserve the right to come onto the premises and inspect the same. It may then prepare and serve on you an interim Schedule of Dilapidations, which is a schedule that lists any items of disrepair the landlord requires to be rectified within a specified period of time. If you fail to comply with the request the landlord may decide to carry out the repairs and recover the cost from you as a debt. It is therefore important to keep on top of any maintenance issues during the term.
What happens at the end of the lease?
It would be wrong to assume you are no longer liable for the property once your lease comes to an end. Most leases will contain adequate provisions to allow the landlord to come onto the property at the end of the term, inspect the same, and serve a similar Schedule of Dilapidations. Normally a landlord will do this immediately before the end of the term but do not be surprised if you later receive notice from your landlord once the lease has come to an end. Careful drafting in the lease will seek to limit the time in which the landlord can do this but it may be several months after the end of the term before you hear from the landlord.
As before, the Schedule of Dilapidations will list all items of disrepair and quantify the cost of any repairs. The landlord may also recover any lost rent whilst the repairs are carried out. The cost of end-of-term dilapidations can be extremely high and advice should be sought if you disagree or wish to contest the same. This highlights the importance of considering your obligations at commencement of your lease and keeping on top of any general maintenance throughout the term.
If you are intending to stay on at the property, be aware that any dilapidations may be rolled over to the new lease and the landlord may have a right to object to a renewal where there are repeated disrepairs.
Please note, this article does not constitute legal advice and its content may be subject to modification depending on any changes in the law.
Hart Reade Solicitors are a full-service law firm with offices in Eastbourne, Hailsham, Polegate and Meads. We hold both Lexcel and Conveyancing Quality Accreditations from the Law Society of England and Wales, as well as being an ALEP member. To make an appointment with one of our commercial property Solicitors, please phone our office on 01323 727 321, or alternatively please complete the contact form below.