Are you considering entering into a commercial property lease as a tenant? Do you fully appreciate your liability as a tenant in a full repair lease? Do you realise the substantial costs you may incur after occupation? A full repairing lease usually requires the tenant to leave the premises in better condition than they were at the beginning of the term. However, you maybe able to limit this liability by having a comprehensive survey carried out prior to occupation.
The majority of commercial property leases will impose full repairing obligations on the tenant. This relieves the landlord from all liability for the cost of maintenance and repairs. Furthermore it ensures that they have as good an investment as possible as the tenant incurs all maintenance cost of the premises including defects prior to their occupation. There are three possible avenues available to prospective tenants:
1. Prior to occupation have the premises made ‘fit for purpose’
2. Remove the more substantial repairing obligations such as roof repair
3. Have a building survey carried out prior to occupation.
The latter is arguably the most efficient and effective way of limiting tenants liability as it is usually the option most favoured by landlords. Unfortunately my experience so far has shown me that prospective tenants’ when advised by their solicitor to get a survey prior to entering into a full repair lease often ignore this advice.
This ignorance can, later down the line, have very sobering effects, as a tenant may only be one week into their lease term when it is discovered that the whole roof of the premises needs replacing. The tenant then will come to us for advice assuming it is the responsibility of the landlord, but this is very rarely the case.
Another repair that can be expensive and disruptive for businesses is electrical repair. On a full repair, the electrics are almost always the responsibility of the tenant but in their haste to complete, the tenant ignores the advice of the solicitor and does not fully appreciate their repairing obligation. Electrical repairs can be expensive and the realisation on the part of the tenant that electrical repair is actually their responsibility can be a bitter pill to swallow. No one likes shocks, especially electrical ones! It is important to remember that electrical safety in commercial properties usually is the responsibility of the tenant. In business premises maintenance of safe electrical systems is a legal requirement and is the responsibility of an employer. The Electricity at work regulations 1989 imposes a legal obligation on employers to ensure that electrical systems used at work under their control are safe. Furthermore your insurance may be invalid, in the event of an accident you may not be able to claim against losses if the accident was a result of none compliance with the said Act. Also on top of this, your Landlord may sue you for breach of contract as the premises were not insured and because you did not comply with the relevant legislation.
Schedule of condition
In order to avoid unwelcome surprises such as these, the best advice is to have a survey carried out before you enter into a lease, especially if the property is for commercial use. An agreed Schedule of Condition at the commencement of a commercial tenancy is the most effective way of limiting future dilapidations liability and allows you as a tenant to fully appreciate exactly what defects you will be taking on.
The majority of commercial property leases divide tenant obligations into sections, repair, redecoration, alterations and removal of tenant goods. If these clauses are not limited they can require the tenant to leave the premises in better condition than they were at the beginning of the term. However opting for a Schedule of Condition before you take on a lease is something that is advised. A Schedule of Condition is a professionally prepared and detailed survey of the building prior to commencement that can highlight existing defects and help develop an overview of the future maintenance and repair. Furthermore the Schedule of Condition will accurately record the condition of the property with reference to the repairing obligations set out in the lease.
However, it is important to remember that in order for a Schedule of Condition to be fully valid, it must be attached to the lease and signed by both the landlord and tenant. Without formal attachment in this way, the schedule will be disregarded during dilapidation negotiations. The cost of preparing a Schedule of Condition can vary, but the cost in relation to the likely saving in dilapidations liability cannot be overstated and is usually a very small fraction of the saving achieved.
In order to avoid suffering an electrical shock, or falling foul of the responsibilities as set out in your lease agreement, it is essential to seek out the advice of an experienced, professional solicitor. A dental specialist lawyer, such as those at Goodman Grant will understand the requirements of the profession and be able to help ensure you are able to make the best decisions for your business.
Kerry-Ann Brooks is a paralegal at Goodman Grant Solicitors. Working within the dental team, Kerry-Ann has a varied job set which includes the due diligence exercise, NHS contract variations, CQC registration and an array of post-completion matters including retentions. She also provides support to the Commercial Property department reporting on leases and drafting key property documents.