Taking out a new commercial lease may be exciting, as it may widen up opportunities for one’s business. It may also be a risky and potentially onerous move if the proposed terms are not carefully examined. To avoid unnecessary stress and expense, the tenant must fully understand its responsibilities under the lease. Leaving rent payments aside as they are self-explanatory, it is worth looking at repairing covenants.
Depending on whether or not the lease is a full repairing lease, the tenant will be under an obligation to keep the whole of the property or the interior “in repair”. It is crucial to make it clear that in certain cases this will not be limited to upkeeping the property as it is: if the property is in a state of disrepair at the start of the lease, then in order to comply with its obligation “to keep the property in repair” the tenant will have to put it in repair first, even though it was not the tenant who allowed the property to fall into disrepair. If this is not done, then the tenant will be in breach of its covenants under the lease and will be subject to penalties and the lease may even be forfeited.
To avoid this, the proposed tenant should inspect the property before committing in order to assess any potential repairs and associated costs. The tenant’s position may be protected by limiting repairing obligations to keeping the property to the same state of repair as it was at the point of the grant of the lease. It is advisable to prepare a Schedule of Condition detailing any problems detected and supplying relevant photographs as proof of the initial standard of repair.
It is not entirely clear whether obligations to keep the property “in good repair” or in “good or tenantable repair” would actually increase the standard of repair sought from the tenant, but it is advisable to avoid such qualifications and limit the covenant to “repair” only.
During the term of the lease, the landlord will usually have a right to inspect the premises on written notice and to rectify any existing problems at the expense of the tenant if the tenant fails to do so. In cases where the lease is granted for a relatively short term and the tenant does not have security of tenure (i.e. statutory right of the tenant to occupy the property after the lease expires is excluded) , the interim inspection may not happen and the landlord may leave it until after the lease expires. The risk for the tenant here is that if disrepair is discovered, the tenant will no longer have the right to enter the property to carry out necessary works and the landlord may seek to recover costs of any potential works. There is no legal obligation on the landlord to undertake inspection before the lease expires. It would therefore be prudent for the tenant to seek advice from a building surveyor in advance as to its potential liabilities. The tenant should also enquire as to what the landlord’s future plans are for the property in question, as in certain situations these may minimise the outgoing tenant’s repairing costs. Taking legal advice in time may help reduce costs and minimise risks associated with repairing obligations under the lease.