Christopher Sykes explains what you need to know about being a tenant – what lease do you hold for your boutique?
The relationship between landlord and tenant is often tricky, but the biggest and most expensive area of likely upset relates to the “dilapidations” and repairing liabilities under a typical business lease. The problem usually rears its ugly head at the end of the lease. The cost to the tenant can be staggeringly expensive and is often an expense not anticipated.
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The UK standard lease of commercial property is usually on what is known as a “full repairing” basis. This means that the tenant is required to keep the property in good repair, condition, decorative order and hand it back in that condition at the end of the lease. Depending on the wording of the lease, and other circumstances, this could for example require the tenant to undertake major and unforeseen repairs. This can apply if the property was in poor condition at the start of the lease unless the liability is limited by the terms of the lease. Even worse, the tenant may even be required to put the property in a better condition.
Problems can follow if only part of a building is leased. Here the tenant’s repairing obligation is usually on the basis of a liability for internal repair and decoration only. However, there are two major potential problems here. Firstly, even though they may not be directly liable for, say, major repairs to the structure or the installation of a new lift, there is likely to be an indirect liability through a service charge. Secondly, the cost of internal repair and decoration, which usually comes to light at the end of the lease, is likely to be considerably more than many might think or plan for.
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Depending on the wording of the lease, and any licence for the works to be carried out, the landlord may be entitled to require the tenant to reinstate the property to the condition it was in before alterations were carried out. Of course, if the alterations have improved the letting value of the property the landlord may be happy for them to be retained, but this is an issue which should be discussed and resolved with the landlord well ahead of the end of the lease agreement.
A repairing obligation is usually a continuous one and redecoration is often required on a periodic basis. But, in practice, it is common for a landlord not to enforce repairing covenants strictly until the lease comes to an end.
Depending on the lease terms, it is possible for a landlord to undertake the work themselves and send the tenant a bill. However, there is usually a procedure which the landlord must follow including giving the tenant a disrepair notice and permitting the tenant a certain time in which to carry out the works himself. There are various technical issues which arise and tactics which can be used to mitigate the problem. If the landlord raises the question of repair or decoration, the tenant probably needs to take professional advice without delay. It is generally much more expensive when the landlord carries out works than when the tenant does.
If the landlord does not suﬀer any loss because the works were not carried out, then he cannot recover the cost of those works. So, if the landlord intends to knock down the building or redevelop it when the lease ends, the claim can be defended by saying that the failure to carry out the repairs has not caused any loss.
Where a tenant and landlord want to renew the lease, it is common for repairing obligations to be rolled over and not paid for until a later date, and in practice this often means at the end of the new lease. Tenants should check if they have a statutory right to renew under the Landlord and Tenant Act 1954. Tenants can negotiate better terms relating to repairs especially if market conditions are weak and the landlord wants a new lease to be taken. If the landlord wants to redevelop the property, and the lease is not excluded from statutory protection, the tenant is likely to be entitled to compensation. What’s more, there may be the opportunity to negotiate extra compensation.
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