Better sooner rather than later
The cost to a tenant of complying with the repairing obligations under a lease can be significant. An early discussion between landlord and tenant can prevent animosity between the parties or the matter leading to litigation.
At the end of a lease a tenant is usually required to give back the property in accordance with the lease and any liability must be assessed in conjunction with the provisions relating to repair, decoration and alterations. Most commercial leases allow a landlord to serve on the tenant a schedule of dilapidations listing the items that are in disrepair and requiring the tenant to comply with its repairing obligations. By opening up discussions and giving sufficient time the outgoing tenant will be able to comply more effectively with those obligations.
The landlord may also be entitled to require the outgoing tenant to reinstate the property if alterations have been carried out. Whilst any pre-existing claims for breach of covenant will be preserved, a right to require the tenant to reinstate may be lost where a reinstatement provision requires notice to be served before the end of the term. This again shows the importance of dealing with such matters in a timely manner and notice should be served in good time before the lease comes to an end.
A landlord may discover that during the term of the lease the tenant has carried out works without obtaining the necessary written consent. If the landlord gave its oral consent or was aware for some time that alterations had been carried out the court might find sufficient acquiescence so as to waive the landlord’s right to enforce a covenant against alterations without consent.
The common law determines damages for breach of a covenant to reinstate or not to alter premises and these will generally be awarded for the reinstatement cost and in appropriate circumstances, a sum for loss of rent. However, the landlord will only be successful in recovering these costs if it can establish that it was appropriate to carry out such works. If not, the award will be calculated according to the reduction in value of the landlord’s interest in the property.
A landlord’s position is more uncertain when the tenant has security of tenure, which gives the tenant a right to renew its tenancy at the end of the term. A tenant does not have to give notice of its intention to vacate and up until the last day of the term is able to walk away without a word to the landlord. Should a landlord be required to serve notice, for example for reinstatement of the property and it is not at that time clear whether the tenant will be vacating the premises, notice may be prepared on terms that make it clear that reinstatement will only be required if the tenant does not renew.
It is advised that a landlord actively monitors its property portfolio in order to fully appreciate the condition of its properties and to be in a position to give notice to a tenant of its obligations in good time. Dealing with these issues as the lease is due to expire could result in the right to reinstatement being overlooked or a tenant being less open to accepting a favorable settlement. Equally, a tenant is advised to be proactive and start discussions and negotiations with its landlord in plenty of time to be able to return the property in the condition required by the lease.
This article contains information of general interest about current legal issues. It does not give legal advice and specific advice should always be sought about your particular circumstances. We will be happy to assist.
Quarter Day eZine
Commercial Property
Sign up to our free Quarterly Commercial Property eZine
Sign up now...