Repairing obligations in leases can prove very expensive for tenants, both during a lease and at expiry and therefore need careful consideration when negotiating a lease.
A landlord will often request a full repairing and insuring lease (FRI lease). This is a lease where the costs of all repairs and insurance are borne by the tenant. This however, will not always be appropriate. It will be depend upon a number of factors, including the length of the lease, the age of the property and the bargaining position of the parties. Generally speaking, the shorter the lease the less appropriate an FRI Lease.
Be aware that an obligation on a tenant to ‘keep the property in repair’ obliges the tenant to put the property into repair, even if it is not in repair when the lease was entered into. If the property is in a bad state of repair at the outset the repairing obligations could represent a considerable burden on a tenant. When negotiating a Lease, a tenant should therefore limit its obligations to keeping the property in the same condition it was in when the lease was entered into. Consideration should however be given to the fact that the word “repair” in a lease can include a liability to renew e.g. where a roof is in such a poor state of repair the only practical option is to renew. These matters are rarely straightforward and each matter must be considered on its own facts and merits.
One way for a tenant to seek to limit their liability for repair is to attach a schedule of condition to the lease providing photographic evidence of the condition upon commencement of the lease and qualify the repairing obligation in the Lease by reference to this. This can be prepared with the assistance of a professionally prepared survey from a Chartered Surveyor. The better the survey, the better the potential safeguard against future dilapidation claims from the landlord. A survey of the building will highlight existing defects and help a tenant to assess the work which may be required to maintain the building to the standard required by the lease. Equally, a landlord will want to ensure that the schedule is prepared thoroughly to create certainty and so as to avoid disputes at a future date.
The definition given to “the property” in a lease is also crucial because this will detail the extent of the property that a tenant is responsible for. This should be defined and understood carefully to avoid uncertainty and unexpected liability.
The condition of the roof may be one of the biggest concerns for a tenant, due to the potentially high costs of repair. It may be possible to negotiate for the roof to be excluded from the repairing obligation. However, each repairing obligation should be considered in the context of the particular premises/building to which it relates.
The tenant should also consider what can be recovered under any service charge. The repairing obligation for the structure could be that of the Landlord and it may be entitled to recover the cost through the service charge. These provisions will need to be carefully considered and one possible safeguard for the tenant is the negotiation of a service charge cap but it is likely this will only be agreed (if at all) for a limited duration.
As the term reaches its conclusion, a landlord will usually direct its mind to future letting and this necessarily involves consideration of the state of repair and how that should be addressed. Understanding the repairing obligations from the outset will allow any tenant to budget appropriately across the term of the lease to ensure that there are no costly dilapidations proceedings at the conclusion of the term, irrespective of whether the lease is renewed. Tenants will need to be aware that, generally, they will be responsible not only for the costs of repairs/dilapidations at the end of the lease but also the landlord’s costs in doing so.