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Commercial leases – a guide for tenants

By Jatinder Kandola

Borneo Martell Turner Coulston

WHEN negotiating lease terms most tenants focus on matters which will have a direct financial impact on their business, such as rent and service charge payments. This often unwittingly leads to the tenant agreeing to a full repairing lease. By the time the lawyers are instructed and Head of Terms (HOT) are circulated the tenant may be about to take a full repairing lease.

What does full repairing lease mean?

The tenant must, at the end of the term (or even during the term), put the property in repair even if that tenant was not actually responsible for the disrepair i.e. it may have been caused by the previous tenant or by general wear and tear.

Commonly, commercial tenants wrongly assume this this means they simply have to return the property to the state they found it in. However, an obligation to keep the property in repair brings with it an implied obligation to put the property in repair. If for example a tenant takes on a property that is not in a good state of repair, they will be liable for reinstating the property on expiry of the lease, not only to the standard in which they entered the property, but to full repair. This could lead to colossal cost implications for a tenants business. Tenants should take the time to water down the repairing obligation at the outset of the transaction when the commercial terms are being negotiated.

Inherent Defects

Tenants should also watch out for liability arising through inherent defects. An inherent defect is one that is as a result of a defect on construction or design of a building which existed when the building was constructed but not clear on an inspection. If the inherent defect causes damage to the property during the tenancy, and the repairing obligation is expressed to be a full repairing obligation, the tenant, may be required to repair the damage. Inherent defects may be of particular concern in new builds, where problems of poor workmanship or materials have not yet been exposed.

Tenants should consider in detail the existing state of repair of the property, and whether they require professional advice from a surveyor in this respect. This is particularly important where the tenant is expected to take on responsibility for the structural parts of the building. Without a full understanding of the issues it will be more difficult for the tenant to make informed choices about the issues going forward.

Schedule of condition

A popular way to limit the tenants repairing liability is to ensure that a schedule of condition is attached to the lease containing a narrative and photographic evidence of then state and condition at the beginning of the lease term. The wording in the lease should also be amended to incorporate the schedule of condition so it is clear that the tenants repairing obligations is limited to returning the property to the landlord in no better state and condition than at the beginning of the lease term.

Who should prepare the schedule of condition?

Many tenants are happy to prepare it themselves and, whilst not ideal, if the rental in the lease is relatively low and the property being let is an internal only demise (which is usual where only letting part of a building) then preparing the schedule yourself is less costly. However, where the tenant is taking a lease of the whole of a building and the responsibility for the structural parts of the building e.g roof and foundations fall to the tenant it is advisable to instruct an appropriately qualified surveyor to prepare a schedule of condition, so as to ensure nothing is missed.

Indirect repairing liability

It is important to be mindful of indirect repairing obligation by way of service charge liability. For instance, if a tenant is taking a on a lease of part of the building, the tenant is likely to be subject to an internal only repairing obligation. That being the case, the temptation may be to focus on internal areas only. However, external areas cannot be ignored. It is highly likely that a tenant will also be liable for a percentage of the costs the landlord incurs in maintaining and repairing and renewing these areas by way of a service charge payment. Therefore inspection of these areas should still be carried out and for the tenant to try to negotiate a maximum cap per annum or exclude parts of the external areas altogether.

Tenants beware when taking over from an outgoing tenant

Where a tenant is transferring an existing lease from an outgoing tenant they should give some thought to whether the outgoing tenant has kept the property in the required state of repair. If not, the new tenant will step into the shoes off the previous tenant and will assume responsibility for any disrepair going forward

Jatinder has experience in advising both landlords and tenants regarding all aspects of commercial lease negotiations and the landlord and tenant relationship. In the event of a dispute our specialist litigation solicitors can help guide clients through the process.

For more information, contact Jatinder Kandola on 01604 622101 or by email on

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