A commercial lease will contain a repairing obligation which sets out the extent of a tenant’s obligations to maintain and repair the leased subjects. The tenant is generally obliged to return the property in a “good and tenantable condition”. Importantly, this obligation may require a tenant to put the property into a better condition than at the start of the lease (if the property was not in a “good and tenantable condition” at that time.
A tenant who fails to meet these repairing obligations may find that she or he is presented with a bill at the end of the lease for “dilapidations” being the landlord’s estimate of the cost to bring the property up to the required standard.
The potential for dilapidations at the end of the lease is, therefore, a very important consideration when negotiating a new lease as a tenant should, along with the obvious outlays (rent, rates, utility bills, service charges, fit out costs etc.) be budgeting for a potential dilapidations liability at the end of the lease. Getting the drafting of a repairing and dilapidations clause right from the outset is essential so that the tenant can make an informed estimate of their liability during and at the end of the lease. This is a complicated exercise and a number of factors have to be taken into account:
- The age, size and character of the property
- The length of the lease
- Is the tenant taking on a lease part of the way through?
- Is there a Photographic Schedule of Condition attached to the lease to limit the tenant’s repairing obligation to keeping the premises in the same condition as shown in that Schedule?
- The extent of the repairing obligation. Does it cover repairs to the roof for example? Does the tenant have to redecorate at the end of the lease? Is the tenant responsible for historic, or latent & inherent defects?
- Has the tenant’s fit out to be removed at the end of the lease?
A lease usually allows a landlord to serve what is known as a Schedule of Dilapidations detailing repairs needed to the property at any time during the lease and at the end of the lease. The Schedule especially at the end of the lease is usually prepared by a surveyor.
Where dilapidations exist, a commercial lease normally provides one of three options (usually at the discretion of the landlord):
- The tenant can complete the works at their own expense and if they fail to do so then the landlord can complete them at the tenant’s expense;
- The landlord can complete the works at the tenant’s expense; and
- The tenant can pay to the landlord a sum equivalent to the cost of putting the property into the condition it should have been in had the tenant complied with their repairing obligations.
Whilst this area of law is complicated and ever changing, issues at the end of the lease can be dealt with by a little thought and consideration at the start of the lease. It cannot be stressed enough that getting the repairing and dilapidations clause right from the very beginning is essentially important to prevent the tenant having a nasty shock at the end of the lease. This in conjunction with a building survey should ensure that a tenant is aware of what might await her or him come the end of the lease.
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