Gemma Stephenson and Edward Williams, in our Commercial Property team, explain.
What are a tenant’s repairing obligations in a commercial lease?
Leases of commercial property commonly contain repairing obligations for tenants and since they can be onerous it is important for them to be aware of the responsibilities they will have before they enter into a lease. It is also important for a landlord to be aware of the implications the agreement surrounding repair may have for them.
What is the tenant required to repair?
What the tenant is required to repair will vary depending on the type of property. Where a whole property is being let to a tenant, they will usually have complete responsibility for the repair of the whole property and the landlord will not have any repairing obligations. However, where a building is in disrepair the tenant may not want to take this responsibility.
Where a property is part of a building (for example a floor of an office block) the repairing obligation is slightly different. The tenant will be responsible for the items included within the demise, this will usually be specifically set out in the lease. In turn the landlord will be responsible for repairing the building of which the premises form part, although these repair costs will generally be recovered from the tenants by way of service charge.
What does your repair obligation require of the tenant?
A tenant will usually covenant to keep their property "in good and substantial repair". In a full repairing lease, this means that when the lease is entered into the tenant will become responsible for putting the property into repair even if it is in disrepair at the start of the lease. This can be particularly onerous for a tenant if the property they are taking on is not in good state of repair. To mitigate this risk, a tenant should at a minimum inspect the property for any potential issues. It is also recommended that a surveyor reviews the property so that the tenant can fully understand the obligations it is taking on.
Limiting the repair obligation
A tenant may wish to negotiate a limited repairing obligation to reduce their liabilities. The ways of doing so include:
- Limiting the repairing obligation to the state of the property as it was at the grant of the lease, which would commonly be evidenced by a schedule of condition.
- Excluding any problematic areas from the tenant’s repair obligation (such as a flat roof which is known to leak), and possibly including an obligation on the landlord to keep such areas in repair
- Excluding inherent defects from the repair obligation. This would typically apply where there have been recent works carried out and would exclude repair due to issues with those works.
The extent to which a tenant’s repair obligation can be watered down will be subject to what deal can be agreed between the parties. Landlords may not want to agree leases which are not fully repairing as they may not be seen as attractive investments so it may be difficult for them to sell the freehold.
Before committing to a lease, it important to understand the repair obligations whether you are a landlord or a tenant. We always recommend that you seek legal advice.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
