Undertaking a Tenant’s Repair Obligations in a Commercial Lease

Wednesday, 01 May 2024

Simon Newman

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When occupying or managing commercial property, one aspect that often arises is how to handle a tenant’s repairing obligations. This can be a complex matter, especially when negotiating a new lease or dealing with issues that arise during the course of a tenancy. In this article, we explore what it means for a tenant to undertake repairing obligations in a commercial lease and how landlords and tenants can protect their interests.

What Are Tenant’s Repairing Obligations?

Repairing obligations refer to the duties imposed on the tenant under the terms of the lease to maintain, repair, and, in some cases, replace parts of the leased premises. These obligations are typically set out in the lease agreement and can range from minor repairs to full restoration of the property. The scope of these obligations depends on the terms negotiated between the landlord and the tenant at the outset of the lease.

Repairing obligations are often linked to the nature and condition of the property at the start of the tenancy, and they can vary greatly depending on the type of property, its age, and the length of the lease.

Common Types of Repairing Obligations

Full Repairing and Insuring (FRI) Lease: This is a common arrangement in commercial property where the tenant is responsible for both repairing the property and insuring it. The tenant must maintain the property in a good state of repair, regardless of its condition at the start of the lease.

Internal Repairs Only: In some cases, the tenant’s repairing obligations are limited to the interior of the premises. The landlord retains responsibility for external repairs, such as the roof and structure.

Schedule of Condition: To limit liability, tenants may negotiate a schedule of condition at the start of the lease. This records the state of the property at the outset, ensuring the tenant is only responsible for keeping the premises in the condition it was in when the lease began.

Dilapidations and End of Lease Repairs

One of the most contentious issues that can arise in commercial leases is dilapidations, which refer to the tenant’s responsibility to repair or restore the property at the end of the lease term. If the tenant fails to comply with their repairing obligations, the landlord may issue a dilapidations claim, requiring the tenant to either carry out the repairs or compensate the landlord financially.

It is important for tenants to be aware of these obligations from the start of the lease and to budget for any repairs that may be necessary. Many disputes can be avoided by maintaining the property throughout the lease term, rather than waiting until the lease is coming to an end.

Protecting Yourself as a Tenant

Tenants should ensure they fully understand their repairing obligations before entering into a lease. Seeking legal advice is crucial, as the obligations can be wide-ranging and financially significant. Key steps for tenants include:

Negotiating a Schedule of Condition: If the property is not in pristine condition at the start of the lease, tenants should push for a schedule of condition. This will limit their repairing obligations to the condition of the property as recorded at the start of the lease.

Understanding the Costs: Tenants should factor in the cost of repairs into their overall business plan. A full repairing obligation can be expensive, particularly for older properties or properties with existing issues.

Regular Maintenance: Carrying out regular maintenance and repairs during the lease can reduce the financial burden at the end of the lease term. This also helps avoid disputes with the landlord regarding dilapidations.

Landlord’s Perspective

For landlords, ensuring the tenant is clear on their repairing obligations is essential. Landlords can protect their interests by:

Insisting on a Full Repairing Lease: This places the onus on the tenant to maintain the property throughout the lease term.

Conducting Regular Inspections: Periodic inspections during the lease term can ensure the tenant is complying with their obligations and prevent more significant issues from arising later.

Handling Dilapidations Sensitively: At the end of the lease, landlords should handle dilapidations claims with care, ensuring the claim is reasonable and supported by evidence. Negotiating an amicable settlement can be more cost-effective than pursuing a legal dispute.

Conclusion

Understanding and managing a tenant’s repairing obligations in a commercial lease is key to avoiding disputes and maintaining a good landlord-tenant relationship. Both parties should seek professional legal advice to ensure that the lease reflects their expectations and protects their interests. By taking a proactive approach, tenants an

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Our client successfully ran ( and continues to do so) a niche business with highly bespoke heavy goods vehicles. It used several legal entities, including limited companies, to conduct its well-established business. It’s not unfair to say the business model was unusual and complex. (Although the Traffic Commissioner (TC) is not a regulator of businesses, to the extent that matters touch on O Licencing, he/she has regulatory powers to exercise against operators. ) An additional factor was that it involved a restricted licence, meaning that the vehicles could only carry the goods of the entity with the licence.

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All requested maintenance documentation and a business model was submitted in advance to the OTC.

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As with many applications or ‘regulatory’ public inquiries, the Traffic Commissioner (TC) has before her or him a set of papers prepared by their case worker. The fact a public inquiry has been convened means there are concerns. The papers alone cannot determine the TCs decision—one way or the other. It is imperative therefore that applicants or licence holders prepare their case thoroughly. If prepared properly, it will help assist the TC to make a favourable decision. If not, the TC may conclude that the case is as it appears on the papers – or even worse.

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On the professional competence issue, we advised that a replacement TM was necessary. The originally nominated TM was, in our opinion, not suitable in this case. A TM may have the qualification, but depending on the facts, more is required, including experience, actual knowledge and other capabilities. Our client accepted our advice and contracted another TM, contingent on the grant of the licence.

Most, if not all, of the TCs case directions were fully adhered to. Documentary evidence and representations were submitted two weeks in advance.

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We were instructed by a business primarily involved in farming and authorised to operate six large goods vehicles

The public inquiry was called before the Traffic Commissioner to consider the operator’s repute. Revocation, suspension, curtailment of the licence, and possible disqualification, were also under consideration (under sections 26(1)(b), 26(c)(iii), 26(e) and 26(f) and 35 of the Goods Vehicles (Licensing of Operators) Act 1995.

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Together, these were serious failings to overcome at PI. Much would depend on how responsive to our advice the operator and transport manager would be.

We were instructed in good time, and promptly advised on all relevant matters. DVSA had concluded there had been a categoric legal entity change, but we were able to give our opinion on this somewhat nuanced area of law. We advised that this could easily lead to the revocation of the licence, but not necessarily. A robust response would be needed in all areas and any shortcomings remedied as soon as practicably possible.

After several meetings, our client and the TM were clear on what needed to be done before the PI. We also advised on what to expect at the PI itself, including what questions might be asked. The client was responsive and we managed to adhere to the OTC deadlines. During our instructions, other matters emerged—ones not raised in the TCs PI Brief papers. We advised on these also to pre-empt further potential questioning.

The hearing went as near-to-plan as could be expected. The operator and TM were well prepared for the hearing. They were able to fully satisfy the TC on most matters raised. The TC accepted our final submissions that there had never been any attempt to deceive or gain an unfair commercial advantage (there had been no such advantage ) and that any mistakes were inadvertent. We’d submitted supporting evidence in advance.

The simple decision was that the TC curtailed the margin on the licence for two weeks. This resulted in no material disadvantage to the operator. On a balance of probabilities, the TC was satisfied that the business would be compliant as the holder of a goods vehicle operator licence. The effect was that the operator was now in a position to continue using its O’licence without interruption, and run its well-established and successful farming business.

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Undertaking a Tenant’s Repair Obligations in a Commercial Lease

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Simon Newman

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