Business Tenants: Have You Thought About Your Repairing Obligations?

September 3, 2024

Business Tenants: Have You Thought About Your Repairing Obligations?

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By Elin Davies

In commercial property leases, it’s crucial for a tenant to understand their repairing obligations during and on expiry of a lease term. Not only is this important for the upkeep and repair of the premises itself, but also to avoid any potential disputes between the parties involved.

Our commercial property law experts discuss below the two main areas of repair liability and some of the ways to limit this.

Internal repairs

Where a lease places an obligation on a tenant to repair internal areas only, a tenant may be asked, amongst other things, to; (i) decorate and keep the interior of the premises in a good state and decorative order, (ii) keep the fixtures and fittings in good repair and condition, (iii) maintain and repair internal systems such as heating, plumbing and electrical, and (iv) repair all flooring throughout.

The landlord will have reserved rights to enable them to enter the property to inspect if internal repairs are being carried out diligently, correctly, and to the standard required. The landlord may also be able to request copies of electrical and heating test certificates as well as service records and other documents.

The landlord is also likely to reserve a right to carry out the repairs at the tenant’s cost if the tenant has failed to do so.

External repairs

There are two distinct ways a tenant could be obligated to repair the externals areas, in addition to the internal repairs: –

1. the lease is a full repairing and insuring lease (FRI) – this places an obligation on a tenant to keep the inside and outside areas in good repair and condition. This can be onerous as the tenant will be obliged to repair areas such as the structure of the building itself (e.g. walls, the roof and any chimney, windows and doors) and any external areas such as a car park, grounds or garden, if applicable to the property. It’s important to be aware that the tenant must put the whole of the property in the state of repair required by the lease even if that tenant was not responsible for that particular disrepair in the first instance, e.g. the property was in a bad state of repair when the tenant took occupation. With an FRI lease, a tenant will also be obliged to keep the building insured and pay the associated premiums.
2. internal repairing obligation only – this places an obligation on the tenant to repair the internal parts with the landlord retaining responsibility for the external/retained parts. However, a tenant will normally be obliged to pay a service charge so to reimburse the landlord for their costs in carrying out such external repairs. In this way, a tenant is indirectly responsible for the maintenance and repairs of the external parts of the building, without having any control over the works that are carried out. This commonly appears where the lease is of part of a building, where other tenants occupy the same building, and there are common and shared areas. The rate of the service charge fluctuates depending on the amount of works carried out by the landlord on the external/retained parts, and the proportion is normally based on the area a tenant occupies within that building.

The rate of the service charge fluctuates depending on the amount of works carried out by the landlord on the external/retained parts, and the proportion is normally based on the area a tenant occupies within that building.

Limiting your repairing obligations

As a tenant, when thinking about entering in to a new lease, or taking an assignment of an existing lease, you should ensure that you fully understand and agree the extent of your repairing obligations at the outset. Importantly, you should also consider your affordability and means to carry out those repairs to the standard required by the landlord.

A useful way of limiting your repairing obligations is to agree a schedule of condition. With this in place, a tenant will normally be required to keep the property in the same state of repair and condition as it is in at the start of the lease by reference to photos and descriptions of the property in the schedule of condition. You will not need to put the property in a better state. By limiting this liability, if any disrepair is apparent at the commencement of the lease (as evidenced in a schedule of condition) a new tenant avoids inheriting any existing disrepair.

Importantly, having a schedule also avoids any potential disputes that may occur with the landlord about what you, as the tenant, are obligated to do when it’s time for you to leave.

If you need advice on negotiating heads of terms of a new commercial lease, a review of your existing repairing obligations, or are considering taking an assignment of an existing lease and need advice on the extent of your potential repairing obligations, then please contact a member of our commercial property team in confidence by calling us on 02920 829 100 for an initial call to see how we can help.