Advice for Tenants of Commercial Leasehold Premises

01 February 2010

Noel Barratt looks at the issue of repair costs for tenants of commercial properties and discusses how they can come to reasonable arrangements with their landlords.

Despite the current climate, all businesses need premises from which to trade or operate whether those businesses need offices, industrial units, shops or restaurants. Often premises will be taken by lease rather than purchase so prospective tenants must consider very carefully the terms of those leases before signing.

Repairs are a significant issue. Most landlords will want to minimise, if not cut out altogether, their responsibility for repair costs when they let their premises. This is understandable but tenants need to consider whether it is appropriate to accept the level of repair responsibility that the landlord is proposing. This is particularly relevant in the current climate as landlords may be more flexible at present.

Whether the premises comprise the whole or a part of the building, thought should be given to how the repair responsibility is split. Where the lease is of the whole building, the tenant will usually be given the responsibility to carry out all repair work and bear the whole cost. In multi-occupied buildings the tenants will take responsibility for the interior of their own part of the building. The landlord then takes responsibility for the repair of the structure and common areas with the cost being passed on to the tenants via a service charge.

The question for tenants is whether it is reasonable for the landlord to pass on the whole liability for repair costs. If the lease is for a long term then the answer will usually be yes. If the lease is for a short term then the answer will almost certainly be no, as the tenant is only making use of the building for a short period.

The liability can be reduced in a number of ways. The tenant could be limited to internal repairs only with the landlord accepting the cost of the repair of the structure and common areas of the building. Alternatively the service charge could be capped or perhaps a schedule of condition could be annexed to the lease.

There are other compromises. There could be a trade off where a higher rent is agreed in exchange for limited repair liability to provide the tenant with greater certainty of the overall cost. Alternatively a rent free period may be agreed where rent is saved to cover the cost of works that may be required to improve the condition of the premises.

These issues need to be considered carefully to avoid or mitigate repair costs during the lease term. All tenants should consider very seriously taking advice before signing a lease and preferably at an early stage even before terms have been agreed with the landlord or his agent. A survey is nearly always advisable to highlight any possible repair issues.

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