Repair Obligations in a Lease: What do Tenants need to know?
Here, Partner of the Real Estate Team at Beyond Corporate Law, Hannah Al-Shaghana, discusses the often overlooked obligation that tenants have to keep a property in ‘good repair’ and what this really means.
One of the most important provisions in a commercial lease is the repair clause. Often, a Tenant will be subject to a “full repairing lease”. This means that the Tenant has full responsibility for the repair of the property, at their own cost.
Tenants often do not realise that an obligation to keep a property “in good repair” means not only a covenant to keep the property in repair, but also includes an obligation to put the property into good repair if it is in disrepair at the start of the lease. The significance of the wording “in good repair” is often missed by many Tenants, which means they often fall foul of the repairing obligation and are quite often surprised when they are served with a Schedule of Dilapidations requiring them to put the property back into good repair.
I always recommend to my Tenant clients that before you enter into a commercial lease and before you agree on the terms of a repair clause, the Tenant must inspect the property (and the building it forms part of) for disrepair and assess the potential repair costs. Clearly, if the property is fairly dilapidated at the outset, the Tenant should not be entering into a full repair obligation. The state of repair of a property can often cause disputes at the end of the lease term when the Tenant must return (i.e., yield up) the property to the Landlord.
What does repair actually mean?
The standard and nature of work that a Tenant has to carry out depends on the age and nature of the building at the date of the grant of the lease. For instance, if the property was an old Victorian building, a covenant to repair would not require the Tenant to modernise that building. If the extent of such premises included rolling shutters and those rolling shutters become corroded or damaged in any way, under a full repair obligation the Tenant would be obliged to repair and or possibly replace those roller shutters. In the Cussins Property Case¹, the replacement of a corroded metal frame single glazed windows with double glazed windows was deemed to be within the Tenant’s repairing obligation. This further emphasises that to keep in good repair quite often means to put it into good repair (whether that repair is better than the current condition).
Please note that an obligation to keep in good condition can often require a Tenant to do works even if there is no disrepair. For instance, condensation in the property may affect the condition of the property but may not actually cause any disrepair to the property. As such, depending on the terms of the specific lease, the Tenant may be required to carry out works to the property to improve the insulation to the property in order to keep the property in good condition.
What aspects of a property need to be kept in good repair?
The scope of the Tenant’s repairing obligation will depend on the extent of the property demised (i.e., leased) to them. If the whole of the building is being demised to the Tenant, the whole of the building will be subject to that repairing obligation (which will include the foundations, the exterior fabric of the building (including gutters, chimneys, and external brickwork) as well as all internal structures). If the demise extends to a car parking area and/or a backyard, the repairing clause will extend to these outside unbuilt areas too.
If only part of the property is being demised to a Tenant, it is extremely important that the lease sets out precisely what structures fall within the responsibility of the Landlord and what structures fall within the responsibility of the Tenant. Care should be taken in the legal drafting to ensure there are no gaps or overlaps in the respective parties’ responsibility for repair. Quite often, the demise will also incorporate all mechanical and electrical services including all plant and equipment. Therefore, it needs to be very clear who is responsible for the mechanical plant and equipment within the fabric of the building (for instance, air conditioning, lifts etc). If a Tenant is taking on all the mechanical and electrical services within the building, I always recommend Tenants to commission a mechanical and engineering report to have all this equipment properly tested to ensure that they are in good working order before they complete the lease.
Failure to comply with a repairing obligation in full, will mean that a Landlord may issue a claim for damages for breach of the repairing covenant.
There are effective ways to limit your repairing obligation and I would always recommend that a Tenant seeks advice and guidance from a property surveyor and/or a property lawyer (such as myself) to negotiate a repair clause that is fair and reasonable.
Should you require any specific advice in relation to repair clauses, please do not hesitate to contact me.
¹ Cussins Property Case = Minja Properties V Cussins Property Group  2 EGLR 52
By Hannah Al-Shaghana