What are the legal obligations for repairs to a commercial property?By: Stuart Darlington

Property News has 100 free copies of A Tenant’s Practical Guide to Commercial Leases to give away. Just contact Stuart Darlington at darlingtonproperty@gmail.com and put "Property News book giveaway" in the subject line.

The overriding principle of English property law is let the “buyer beware”. The purchaser or tenant must take a property as he finds it, warts and all. Essentially, it is for the buyer or tenant to carry out his own due diligence and it is not for the seller or landlord to volunteer any information.

Leases usually compound a tenant’s liability due to a hidden obligation where the law implies an obligation to first “put” the premises in repair and then keep them maintained so the tenant is liable for any pre existing defects and disrepair.

Accordingly, in every case (except where the property being acquired is yet to be built) it is advisable to arrange for a survey to be carried out by a qualified surveyor. In addition, a full mechanical and electrical survey of all air conditioning (also air extract, ventilation and refrigerant cooling apparatus in the case of restaurant and bar premises), as well as lifts and other such plant and equipment is highly recommended.

In terms of the actual lease provisions there are a number of other considerations:

• Some leases include an obligation to rebuild the premises. From a tenant’s perspective this should be resisted for obvious reasons.
• Similarly any obligation to replace any part of the premises or any plant should be deleted where possible or at least limited to replacement only where the item in question is beyond repair.
• Inherent and latent defects should be excluded. This (very generally) means that any defects in design or construction or otherwise inherently part of the premises should not be the tenant’s liability. Generally landlords refuse to agree to this, their attitude being that a tenant should rely on their survey but some defects may not be apparent at the time of inspection.

Where the landlord was under an obligation to the tenant to procure the construction of the premises before the lease is granted or where simply the property has been recently built, a tenant would usually expect to receive warranties from the contractor and professional team. These give the tenant a right of action against the provider of those warranties in respect of any breach of the terms of the building contract in relation to the contractor and breach of the terms of appointment of the other relevant professionals..

From a tenant’s perspective, the very least a tenant would want in respect of any new build is warranties. However, the preferred position would be for the landlord to be liable to make good those defects. The issue with warranties is whether there are any restrictions as to what defects the relevant warrantor may be liable for as contained in either the building contract or deeds of appointment. In addition, the tenant must ensure that where warranties are provided they are backed up by insurance. Otherwise, it may be the tenant has a claim under a warranty but the contractor is either insolvent or does not have the money to pay for the remediation of any defects. However, there is no guarantee that such insurance will be maintained. If it lapses this leaves the tenant exposed.

With the above in mind, the safest course is to insist that the tenant’s obligation is limited to preserving the premises in their condition as at the date the tenant takes occupation of the premises. This is usually achieved by a detailed photographic survey being undertaken by one party and agreed by the other, and referred to as a “schedule of condition”. However, landlords will not usually agree to this except where the lease is for a short term.

There are a couple of other surveys that are as important as the building survey:

• Asbestos and other harmful materials can be incredibly costly to remove. In the case of asbestos the premises would be shut down, sealed, the asbestos is then removed and a clean air test is then conducted to ensure that there is no asbestos in the air and that it is safe to breath. Only then can the tenant re-occupy the premises.

The tenant should therefore request a Demolition and Refurbishment Asbestos Survey from the landlord. All owners and occupiers have a statutory duty to have conducted an asbestos survey but there is no requirement as to how intrusive that survey must be.

• The tenant will also be keen to ensure that the premises comply with all fire safety legislation and are serviced by adequate fire escapes.
• Anyone selling or letting leasehold property must provide an Energy Performance Certificate (“EPC”) to the buyer/tenant by law. The EPC will grade the property in terms of energy performance and make recommendations about how to improve that grade and performance. This has various implications. Firstly, poorly performing units will cost more to run. Secondly, it has been mooted that in the future business rates may be linked to energy efficiency so that poor performing units will be pay higher rates. In addition, in future works may be compulsory to poor performing units to increase their efficiency.

There are various other ancillary lease provisions that indirectly relate to the tenant’s liability for the repair and maintenance of the premises:

• A tenant will usually be obliged to comply with all statutory requirements in relation to the premises and the tenant should note this would include any requirements imposed on the owner or occupier and could be costly. For example, if the premises are not compliant with the Disability Discrimination Act the tenant will be bound to carry out the works. However, again the tenant’s survey should pick this up.
• Linked to the above, the tenant will usually be obliged to both comply with planning law in respect of the premises and to ensure the premises continue to have the necessary planning permission for use.

Similarly, if any kit or ducting on the exterior, or any other alterations for which planning permission would be required, does not in fact have planning permission, this will be the tenant’s liability to resolve.

• Some leases will require the tenant not only to comply with any notices relating to statutory requirements affecting the premises but also to join with the landlord to contest any notices or legislative requirements. This is essentially required by the landlord to give the landlord the ability to take action to protect the value of his asset. On that basis, and that the tenant is obliged to comply with the notice and with all statutory requirements affecting the premises, it is not reasonable to ask the tenant to join with the landlord in contesting any notice or legislation unless the landlord refunds the tenant’s costs of doing so and any such action does not prejudice the tenant’s reputation or affect his trade.
• The lease will usually require the tenant to decorate at certain intervals. Five years for the internal parts and three years for the external parts are common. These provisions are reasonably standard.
• The tenant should insist that, notwithstanding the lease, they will not be liable (whether by way of remediation, management, or clean up or payment of the costs of such clean up in any way, whether via the service charge or otherwise) for any pollution or contamination, which existed or the cause of which arose prior to the grant of the lease (including the removal or management of asbestos). However, even with a lease containing this clause, this will only govern liability between the landlord and the tenant. It does not exclude the tenant’s liability as occupier to the local authority for historic contamination, which is possible.

This is an extract from A Tenant’s Practical Guide to Commercial Leases by Stuart Darlington who has written this jargon-free book for those engaged in negotiating or entering into commercial leases. The book focuses on the practical implications of leases in order to give a commercial advantage and avoid risks.

About the author

Stuart Darlington is a partner at Davenport Lyons and has been specialising in acting for retail, leisure and corporate occupiers for over 13 years.

*EXCLUSIVE Property News Reader Giveaway*

Property News has 100 free copies of A Tenant’s Practical Guide to Commercial Leases to give away. Just contact Stuart at darlingtonproperty@gmail.com and put "Property News book giveaway" in the subject line.