Commercial leases repairing covenants
As the commercial property market recovers, there is an increasing trend for landlords to seek to enforce repairingobligations in commercial leases. This can have adverse, practical and financial consequences for the incumbenttenant.
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 bythe landlord:-
- Schedule of Condition – A Schedule of Condition is a document which provides a thoroughdescription of the physical condition of the property and in many instances makes reference to thedescription of the property by reference to photographs. This schedule is agreed between the proposedlandlord and tenant at the outset, and inserted within the Lease to qualify the repairing covenant. Themeans by which this is achieved are that the following words or words to similar effect are inserted in therepairing covenant. The tenant shall not be obliged to keep the premises in any better state andcondition than that evidenced by the attached Schedule of Condition;
- Prevention is better than cure – The prudent tenant should in conjunction with their professionaladvisors carry out a detailed pre inspection of the premises. The purpose of this is to identify any items ofdisrepair which could be rectified prior to the commencement of the term of the lease. The extent to whichthe landlord will concede to make any suggested repairs to the premises will of course be determined bythe 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 repairand condition; this is in fact two covenants. The first is to keep the premises in good and substantial repairand the second is to keep the property in good and substantial repair and condition. The crucial point toappreciate is that the covenant to keep the premises in good condition has the potential to go beyond theliability to keep it in good repair. Please note a covenant to repair does not take effect until the premisesare in a state of disrepair. The courts have interpreted the word condition more widely and so exposes thetenant 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 thepremises should only extend to the internal structure/fabric of the building. However, if you are takingthe whole building, you should expect to enter into what is called a FRI lease, this is for a full repairingand insuring lease. Under the latter, you will be expected to fully repair and insure the whole of thebuilding consists of the premises.
Failure to obtain practical and technical advice concerning the repairing obligation on the part of the tenant, couldseriously 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 0116247 2009 or by email at email@example.com.