08 Jul 2013

Dilapidations and Repairs in Commercial Leases

Dilapidations and Repairs in Commercial Leases

David Orr, Senior Solicitor, explains the importance of taking specialised legal advice before entering into a commercial lease and when dealing with repairs and dilapidations issues under a lease of Commercial Property.

David Orr, Senior Solicitor, explains the importance of taking specialised legal advice before entering into a commercial lease and when dealing with repairs and dilapidations issues under a lease of Commercial Property.

The nature of a tenant’s repairing obligation under a commercial lease often comes as a nasty surprise to the occupier of a commercial property who did not take legal advice before entering into the Lease.  A couple of cases which have recently gone through the Courts serve as a reminder that it can be a costly mistake for a tenant to sleepwalk into accepting a very onerous repairing obligation.

Although, on the face of it, commercial leases generally follow the same formula, there really is no such thing as standard wording for a repairing clause. In order to determine the appropriateness or extent of a repairing obligation, the precise wording of a particular lease has to be carefully considered, taking into account the age, location, purpose and general state of repair of the property concerned.

The relative bargaining positions of the landlord and the tenant, and the availability, or otherwise, of property in the area, will have an impact on a tenant’s ability to negotiate with the Landlord with a view to restructuring its obligations.  However, given the relative availability of commercial property in some parts of the country, we are finding that even the strongest institutional landlords are becoming more accepting of our realistic variations to repairing obligations.

There are many ways in which a tenant should seek to protect its position. For example, when negotiating the terms of a lease in respect of a property which is in anything other than perfect condition, a tenant should always seek to limit its repairing obligation to keep it in that less than perfect condition, usually by reference to a photographic schedule of condition.

A tenant should also seek to have an exclusion of any responsibility for repairs arising from latent and inherent defects in the property (i.e. defects in the building that aren’t apparent from a visual inspection). In addition, a tenant should be afforded the benefit of any guarantees or warranties which have been granted by construction and design professionals during any building or refurbishment process.

Even seemingly slight tweaks to the wording of a lease, such as changing an obligation to “put a property into good repair” to an obligation to “keep a property in good repair”, will have a massive impact on the nature of the works which a landlord can expect a tenant to carry out.

As the commercial property market becomes increasingly sophisticated, investors are looking at more imaginative ways to maximise revenue streams. In doing so, many landlords are adopting a robust approach to pursuing claims for dilapidations at the expiry of a lease and during the lease term. The importance of giving careful consideration to the exact terms of the lease when serving a schedule of dilapidations cannot be overstated. A misjudged reference to something which is actually the landlord’s responsibility could crystallise an obligation on a landlord to carry out work to the property and, effectively, cancel out a significant proportion of a claim.

For the same reason, a tenant should also carefully check the precise wording of a lease against any schedule of dilapidations which is served on them. Where a landlord has taken a broad brush approach, a tenant may be able to negotiate a significant reduction to a dilapidations claim. Also, most leases will make some provision in relation to the timing of a dilapidations claim, so there may be questions about the ability of the landlord to enforce the obligations.

David Orr, Solicitor


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