Repair –v- compensation for Disrepair (Part 1)
In three instalments our commercial property partner Michael Higgin explains a tenant’s duty to repair its premises and looks at what compensation it may need to pay for not doing so.
As an occupier of leased premises, when your lease term comes an end your landlord will expect the premises to be returned to them in the state they should be if you had complied with your obligations to repair and decorate as set out in your lease. The law on dilapidations is complicated, and has been subject to much litigation over the years, so taking legal advice is strongly recommended.
Almost all leases contain separate obligations:
- for the premises to be kept in repair;
- for decoration works to be carried out, both during the term and in the last few months of the term;
- to comply with statutory requirements;
- to give up ‘vacant possession’ at the end of the term; and
- to remove and make good any alteration works which have been carried out during the term of a lease.
Some leases say that the landlord must serve a notice before alteration works are required to be reinstated. If so, sometimes the landlord must do this proactively and sometimes the tenant must prompt the landlord. A tenant should carefully read its documentation to see which regime applies, and if so, on what terms.
Sometimes the repair obligation is qualified by reference to a schedule of condition which limits the extent of that repairing obligation.
Importantly, a tenant is responsible for its “premises”, so understanding what is leased to it and what is not is important. Many office and shop leases in larger buildings are skin-deep, interior only (and for shops, shop front) leases. Occasionally certain features are agreed to be excluded from the tenant’s repair responsibility and retained by the landlord (such as old air conditioning, or an old roof, if they are in disrepair before the term starts).
Read your documents in good time
The obligation to reinstate alterations may be repeated (or varied) in any express “licence for alterations” which has been granted during the term. It is therefore sensible for a tenant to read its lease and any licences for alterations in good time before the end of the term of the lease to remind itself what the obligations are.
Break clause conditions
If the tenant is terminating its lease by using a break clause, then in many (especially older leases) compliance with the lease obligations is of critical importance. Also, if it does not remove alterations and partitioning this can mean that it has not given up “vacant possession” of its premises. If the tenant puts its workmen into the property after the term has ostensibly ended in order to carry out repair works, then that may mean that “vacant possession” has not been given up, which can be critical in the matter of the effectiveness of a break notice. Both of these can mean that a break notice is ineffective, and the tenant’s lease continues which may be very costly news.
This would be very significant, and a tenant should take legal advice on this topic if it is exercising a break clause.
Part 2 looks further at dealing with Schedules of Dilapidations and the risk of Forfeiture (see related articles below).
Part 3 deals with the Conduct of Dilapidations claims and whether the tenant may choose to do repair works or not (see related articles below).