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T

HE RELATIONSHIP BETWEEN LANDLORD

and tenant is often tricky, but the biggest

and most expensive area of likely upset

relates to the dilapidations and repairing

liabilities under a typical business lease. The

problem usually rears its ugly head at the

end of the lease. The cost to the tenant can be

staggeringly expensive and is often an expense not properly

provided for or anticipated.

STANDARD TERMS

The UK standard lease of commercial property is

usually on what is known as a “full repairing” basis.

Simply put this means that the tenant is required

to keep the property in good repair, condition,

decorative order and hand it back in that condition

at the end of the lease. Depending on the wording of

the lease and other circumstances this could for example

require the tenant to undertake major and unforeseen

repairs. This can apply if the property was in poor

condition at the start of the lease unless the

liability is limited by the terms of the lease. Even

worse, the tenant may be required to return the

property in a better condition.

Problems can follow if only part of a building

is leased. Here the tenant’s repairing obligation

is usually on the basis of a liability for internal

repair and decoration only. However, there are

two major potential problems here. Firstly, even

though they may not be directly liable for, say, major

repairs to the structure, there is likely to be an indirect

liability through a service charge. Secondly, the cost of

internal repair and decoration is likely to be considerably

more than many might think.

ALTERATIONS MADE TO THE PROPERTY

Depending on the wording of the lease, and any licence

(consent) for the works to be carried out, the landlord may

be entitled to require the tenant to reinstate the property to

the condition it was in before the alterations were carried

out - this again could be very expensive. Of course if the

alterations have improved the letting value of the property

the landlord may be happy for them to be retained, but this

is an issue which should be discussed and resolved with the

landlord well ahead of the end of the lease.

REPAIRS DURING THE LEASE

A repairing obligation is usually a continuous one and

redecoration is usually required on a periodic basis. A

lease might specify internal decoration every fve years

and external decoration every three years. In practice it is

common for a landlord not to enforce repairing covenants

strictly until the lease comes to an end.

There can be special circumstances where a major issue

arises or where it is important to the landlord that the

property is maintained and presented to a high order –

for example, a shop in a prestige shopping centre. There

are, however, statutory limits in the Leasehold Property

(Repairs) Act 1938 on the landlord’s ability to forfeit a lease

for breach of a repairing obligation where the lease has

more than three years unexpired.

Depending on the lease terms, it is possible for a landlord

to undertake the work themselves and send the tenant a bill.

However, there is usually a procedure, which the landlord

must follow. This procedure includes steps such as

giving the tenant a disrepair notice and permitting

the tenant a certain time in which to carry out the

works himself. There are various technical issues

which arise and tactics that can be used to mitigate

against the problem.

If the landlord raises the question of repair

or decoration the tenant probably needs to take

professional advice without delay. It is generally

much more expensive when the landlord carries out

works than when the tenant does and also, there are

likely to be costly professional bills of the landlord’s

lawyers and of surveyors who will prepare a

schedule of necessary works and also supervise

them. There could be disruption whilst the

works are carried out. It may be possible to

challenge the cost of works or the necessity to

undertake them; the amount the landlord can

claim can be restricted.

LEASE RENEWAL

Where a tenant and landlord want to renew the lease

it is common for any repairing obligations to be rolled

over so that they do not have to be carried out or paid for

until a later date, and this often means at the end of the new

lease. Tenants need to be aware of whether or not they have a

statutory right to renew under the Landlord and Tenant Act

1954 – a solicitor will be able to check this quickly by looking

at the lease. If so, this will considerably improve a negotiating

position. Tenants may then be able to negotiate better terms

relating to repairs particularly if market conditions are weak

and the landlord is very keen for a new lease to be taken. If

the landlord does not want to grant a new lease and wishes

to redevelop the property, and the lease is not excluded from

statutory protection, the tenant is likely to be entitled to

compensation. There may be the opportunity to negotiate

extra compensation depending on the circumstances.

Business things

you should know

03

Our latest round-up of advice to keep you well informed

Christopher Sykes and Colin Harvey, partner and solicitor

at Sykes Anderson, give you the low-down on how to navigate

the choppy waters of landlord and tenant relationships.

Dilapidations Danger

01

“If the landlord raises

the question of repair or

decoration the tenant

probably needs to take

professional advice”

095-097.BB.163.business.indd 95 29/05/2014 16:16