Damage limitation
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Commercial leases are rarely properly read. Attention naturally focuses on the rent and rent-review clauses, but a haulier could be left seriously out of pocket by ignoring the duties imposed by the repairing covenants of a lease.
It is all too tempting to hope that, once in the building, the lessee will not be required to do more than the obligatory monthly window cleaning and a spot of decorating.
In fact the buyer should be aware that the courts are giving an increasingly onerous interpretation to the word "repair". In the past, if repairs amounted to an improvement of the landlord's property the tenant did not need to do them. According to one judge, a covenant to repair was not an agreement to give back something that was different to that which the tenant took when he entered into the covenant, More recently tenants have been required by the courts to carry out remedial work within the scope of their repairing covenant. This has been the case even where the damage has been caused by some structural defect in the property. Even more perilous, a covenant can be so widely drafted as to leave it absolutely free from judicial doubt that what has been imposed on the tenant is a duty to reconstruct the entire property, if necessary.
Fortunately a purchaser of a commercial lease can avoid common pitfalls.
The purchaser might not realise that some repair covenants actually require the tenant to put the property into an enhanced state of repair, following which the repairs must be kept up to that standard. This means that a covenant "to keep" premises in repair can actually mean putting the property in repair even if at the time of the purchase it was in disrepair. A purchaser who is asked to enter into this form of repair covenant should be aware of this when negotiating the rent.
The duty to repair usually involves restoring the property at the end of the lease to the same condition as it was at the beginning of the lease. To avoid disputes the purchaser would be well advised to invest in a detailed structural survey.
The buyer should then insist there is a "schedule of condition" based on the survey incorporated into the lease.
With new properties a haulier should be aware of the possibilities of inherent defects. You don't want to be unwittingly bearing the cost of problems in the original construction or design by accepting a full repairing obliga
tion without further investigation. In considering his repairing covenants, the tenant must not disregard those of the landlord; in the case of a dispute the tenant's responsibilities will be defined by the court in the context of the landlord's obligations If the lease does not stipulate responsibility for a particular repair there is a risk that the landlord could succeed in shifting the cost of the repair on to the tenant. In the interim, time and money will have been wasted by the tenant in legal proceedings.
When the purchaser has made a commercial decision about what his maximum liability for repairs should be, the wording used to express this liability should be considered. Where the covenant is minimal, requiring no more than cleaning and tidying, the task is easy. This is also true when the repair covenant is at the other end of the scale, requiring the rebuilding of the entire property if this becomes necessary during the term of the lease. Unfortunately it is usually the case that the covenant falls somewhere mid-stream. And this is the problem.
A variety of phrases are used to describe the "mid-stream" repairing obligations. For example, "to substantially repair"; "to maintain in good and tenantable repair and condition"; or "to well and sufficiently repair".
They all sound similar. In the event of a dispute the legalese will be translated by the courts. They will endeavour to decipher the original intentions of the parties by reference to various factors, such as the length of the term, the type of property and its state of repair at the date of the lease.
In one case, where the repairs had resulted from a remedial defect, the court reached a decision by comparing the estimated costs of the repairs with the cost of rebuilding the entire building— and £55,000 was thought to be trivial in comparison to .f..3,000,000. As a result the tenant was made to pick up the repair tab. The moral is to make your intentions crystal clear in the lease.
Even if there is no doubt about the standard of repair expected of the tenant, it is worth making sure that everyone agrees what the tenant is meant to be repairing. Hazy definitions of the property and vague references to the "interior" and the "structure" may mean that it is very difficult to decide which parts of the property are the tenant's responsibility.
Saying what you mean is also important, because a tenant's liability can extend beyond the period during which he owns the lease. Under new legislation which came into effect at the beginning of last year the landlord may be able to require the tenant to guarantee the obligations of the person to whom he assigns the tenancy A prospective tenant needs to be wary of taking on more repairing responsibility than he intended or can afford. Inadequate attention to this part of the lease can be a costly mistake. The prospective tenant needs to be fully aware of his duties and responsibilities.
As the law stands he may not only end up paying for his mistakes but may be underwriting breaches of repairing covenants committed by the person to whom he eventually sells the lease.
C by Bryan J Emden The author is a commercial property Partner in the City law firm FOX William