An important area in commercial leases relates to a tenant’s repairing liability. It is understandable that tenants focus on the ‘direct’ financial obligations when negotiating terms – such as rent and service charge. However, it is vital that the tenant does not find itself inadvertently signing up to a full repairing liability.
A full repairing liability means that at the end of the lease term (or even during the lease term), the tenant must put the property in repair even if that tenant was not actually responsible for that disrepair in the first place – i.e. it may have been caused by the previous tenant or by wear and tear/the age of the building. Because of the harshness of this rule, this obligation sometimes comes as a surprise to tenants and they assume that they simply need to return the property to the landlord as they found it. That is not the case and it is important to negotiate limitations to this obligation.
A useful and fundamental way to limit the tenant’s repairing obligation is by ensuring that a Schedule of Condition is attached to the lease – containing both a narrative and photographic evidence of the state and condition of the property at the beginning of the lease term. The wording of the repairing obligation in the lease would need to be amended to incorporate that Schedule of Condition into the document.
When preparing Schedules of Condition, some tenants prepare the narrative and photographs themselves – especially if the lease contains an internal only repairing obligation. However, care should be taken here and it is prudent to engage the services of a surveyor to prepare the Schedule of Condition to ensure that it is sufficiently detailed/catches everything. If the repairing obligation extends to the structure and external parts of the building (including the roof), then clearly, a surveyor would be best placed to document any disrepair and it would be necessary to gain access to the roof for this purpose.
This is to be decided on a case-by-case basis. If a tenant is taking on a lease of a dilapidated building (for example, which is affected by water ingress) then the starting point may be to document the affected areas in the Schedule of Condition. However, in the absence of appropriate clauses to deal with such issues, there would be a ‘gap’ in the repairing obligations within the lease. Clearly, it is in the tenant’s interests to ensure that the property is not affected by water ingress throughout the lease term so it would be appropriate to negotiate that these areas fall within the landlord’s repairing obligations. This is also important because the water ingress is highly likely to lead to further disrepair – which would not be caught by the Schedule of Condition and therefore, it would become the tenant’s problem.
It is very important to be mindful of ‘indirect’ repairing obligations by way of service charge liability. For example, if a tenant is taking on a lease of part of a building, the tenant is likely to be subject to an internal only repairing obligation. In that case, whilst the Schedule of Condition would correctly focus on the internal areas, it would also be important for the tenant to protect itself from paying excessive service charges in relation to the landlord’s expenditure to repair the external, structural and common parts of the building. As well as obtaining advice from a building surveyor, it would be advisable to negotiate an annual service charge cap under these circumstances.
If you need any advice on repair and dilapidations, please contact a member of our commercial property law team in confidence here or on 02920 829 100 for a free initial call to see how they can help.
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