PROPERTY
Commercial leases and repairing covenants
– are you keeping your business protected ?
Leasing a commercial property is one of the most significant financial commitments that either an individual or a company will make . Sanderson Weatherall partner David Fairley says there are some important steps you can take to avoid storing up problems for the future ...
Repairs – Sanderson Weatherall partner David Fairley says it ’ s important to plan ahead to avoid future problems .
When signing a lease , a repairing covenant will transfer a legal obligation to the tenant to repair all or part of the property .
Often , little thought is given to the implications of the repairing covenants within a lease and the potentially significant financial impact at the end of the lease term . This is especially the case when there is a desire to move quickly or to mitigate initial levels of expenditure .
It should be a prerequisite of any property transaction that full due diligence is undertaken to identify the extent to which the repairing covenants are likely to impact a tenant ’ s occupation , and the potential for significant expenditure at the end of the lease , when the landlord will undoubtedly prepare a terminal schedule of dilapidations and seek to enforce the repairing covenants .
Unfortunately , little consideration is often given to the subsequent financial impact at the end of the lease term , particularly when there is a desire to take space as quickly as possible and also to mitigate initial levels of expenditure .
In order to protect a tenant ’ s position , consideration should therefore be given to undertaking a building survey using a suitably qualified chartered building surveyor to identify areas of significant concern that should either be rectified by the landlord prior to occupation or should be removed from a tenant ’ s repairing obligations during the term of the lease . An alternative method would be to agree with the landlord ’ s solicitor that a schedule of condition is undertaken , and that the documentation is then attached to the lease .
This can then be used as a benchmark to limit a tenant ’ s repairing obligations at the end of the lease , on the basis that the elements identified are in no worse condition than they were on a day-one scenario .
In addition to the above , careful consideration should be given to the extent to which the repairing covenants within the lease are agreed to , noting that these can either create an obligation whereby the tenant is responsible for both the internal and external elements of the property or , subject to negotiation between solicitors , a less onerous internal repairing obligation can be agreed .
Again , the potential for significant financial and repairing obligations both during the term of the lease and also at lease termination will be significantly affected by the nature and extent of any such repairing obligations agreed at the outset of a lease .
As such , it is one that will need to be carefully considered , subject to the condition and type of property to be tenanted .
The relatively low level of professional fee expenditure which is likely to be incurred as part of the due diligence process prior to lease commencement should not be considered as an unwanted additional burden .
Rather , it should be seen as a way of mitigating potentially onerous repairing and financial liabilities at the end of the lease when resources are limited , given that a tenant is potentially terminating their lease agreement because of financial difficulties .
Moreover , the initial cost is often a fraction of the potential claim at lease end .
Sanderson Weatherall has a highly skilled team of chartered building surveyors who have worked with many Teesside businesses , providing due diligence advice and building surveys . For more information , contact David Fairley on 01642 426900 .
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