Commercial Lease repairing covenants
As the commercial property market recovers, there is an increasing trend for landlords to seek to enforce repairing obligations in commercial leases. This can have adverse, practical and financial consequences for the incumbent tenant.
Clearly, whilst it is not possible to renegotiate the terms of an existing commercial lease, a new tenant seeking to take a lease can take a number of practical measures to mitigate the risk of the repairing covenant being enforced by the landlord:-
• Schedule of Condition – A Schedule of Condition is a document which provides a thorough description of the physical condition of the property and in many instances makes reference to the description of the property by reference to photographs. This schedule is agreed between the proposed landlord and tenant at the outset, and inserted within the Lease to qualify the repairing covenant. The means by which this is achieved are that the following words or words to similar effect are inserted in the repairing covenant. The tenant shall not be obliged to keep the premises in any better state and condition than that evidenced by the attached Schedule of Condition;
• Prevention is better than cure – The prudent tenant should in conjunction with their professional advisors carry out a detailed pre inspection of the premises. The purpose of this is to identify any items of disrepair which could be rectified prior to the commencement of the term of the lease. The extent to which the landlord will concede to make any suggested repairs to the premises will of course be determined by the relative bargaining strength of the parties. However, this step should be attempted;
• In terms of actually agreeing the repairing covenant. The typical repairing covenant encountered in a commercial lease is along the lines of the Tenant is to keep the premises in good and substantial repair and condition; this is in fact two covenants. The first is to keep the premises in good and substantial repair and the second is to keep the property in good and substantial repair and condition. The crucial point to appreciate is that the covenant to keep the premises in good condition has the potential to go beyond the liability to keep it in good repair. Please note a covenant to repair does not take effect until the premises are in a state of disrepair. The courts have interpreted the word condition more widely and so exposes the tenant to further potential liability; and
• If you are only taking a lease of part of a building, then in general terms, your liability to repair the premises should only extend to the internal structure/fabric of the building. However, if you are taking the whole building, you should expect to enter into what is called a FRI lease, this is for a full repairing and insuring lease. Under the latter, you will be expected to fully repair and insure the whole of the building consists of the premises.
Failure to obtain practical and technical advice concerning the repairing obligation on the part of the tenant, could seriously undermine the tenant’s position in respect of the premises and of course lead to potential cost consequences.
For more information on leases, or any other commercial property matters, Dennis Thomas can be contacted on 0116 247 2000 or by email at email@example.com.