A tenant’s liability to repair the property during the term of a commercial lease is substantial. Notably, the liability does not simply come to an end when the contractual term of the lease is up either.    

The extent of the repair obligations within the lease will often be agreed within the heads of terms and should take into consideration the type of property being leased, its current condition, the length of the term and whether the tenant is taking on a ‘fully repairing and insuring’ lease or an ‘internal repairing only’ lease.

Fully Repairing or Internal only?

 A fully repairing and insuring lease means that the tenant is responsible for maintaining the whole property, including the roof and structure, at their own cost. This repairing obligation will usually apply where a tenant is taking a lease of a whole building for example a warehouse on an industrial estate.

In comparison, where a tenant is taking a lease of part of a building, for example, an office in an office block, then the tenant’s repairing obligation will be limited to the internal parts as defined by the lease. The internal parts will often include any internal non-structural walls, interior plaster, floor screed, doors, door frames, windows and window frames, landlord fittings and fixtures, as well as any service media exclusively serving the property.

The Landlord will be responsible for the structural and external parts of the building along with any common parts. The Landlord will usually pass on a fair proportion of the costs incurred for these repairs via a service charge.

Limiting Liability for Repair – Photographic Schedule of Condition

A photographic Schedule of Condition can be useful in minimising a tenant’s repair liability. This is a document which includes photos of the property taken just before the Lease is granted, evidencing its state of repair. The correlating repair clause within the lease should provide that the tenant is not required to return the property to the landlord in any better condition that as shown within the Schedule of Condition, thereby limiting the tenant’s repair obligation.  

A Schedule of Condition can prove invaluable, especially where the property is not already in a good state of repair.

Latent Defects

For newer properties, consideration should be given as to who is to be responsible for defects arising from the original construction of the property. The tenant’s repair clause within the Lease should exclude liability for such damage and place a positive obligation on the Landlord to deal with such defects. Whether this position is accepted by the Landlord will depend on the bargaining power of the parties. A direct warranty from the building contractor to the tenant can also help reduce the risk.

Repair During the Term and After The End of the Term

Once the Lease has been granted, the tenant will be responsible for complying with the repair obligations throughout the term and the Landlord is entitled at any time to inspect the property to check its condition.

If the property has not been kept in a good state of repair, then the Landlord can serve a notice requesting that the relevant repairs are undertaken within an agreed time frame. If the repairs are not undertaken within this time frame, then the Landlord is permitted to enter the property undertake the works and pass on the costs to the Tenant; such costs will usually include any legal costs incurred in drafting and serving the notice.

At the end of the term, the Landlord will inspect the property and, if necessary, instruct a surveyor to prepare a Schedule of Dilapidations detailing all items of disrepair in the property together with the associated costs of repair.

At this stage the repair clauses within the Lease will be reviewed to ascertain any limitations, for example by having reference to a Schedule of Condition.

Dilapidations costs can be significant, so it is very important that the repair clauses are agreed and considered in full by the tenant before entering into the Lease.

Conclusion

A tenant’s repair and maintenance liability are significant. A tenant should carefully consider the extent of their liability when agreeing the heads of terms.

The drafting of such obligations are complex and technical in nature and any tenant thinking about taking on a new lease (or the assignment of a lease) should liaise with a solicitor regarding the risks involved. Such advice can prove invaluable and can in some cases help the tenant to avoid a large dilapidation claim at the end of the Lease. 

To speak to a member of our Commercial Property Team, please do not hesitate to contact us.