Occupiers – Do you know you're Leasehold Obligations?
Occupiers Do you know you're Leasehold Obligations
?
A lease relating to a commercial property will undoubtedly stipulate express obligations placed upon the tenant, relating to the maintenance and upkeep of the building. Yet it is not uncommon for businesses to only look at the lease of their building twice once prior to them signing it at lease commencement and the other time at lease expiry. By then it is often too late to return the property back to the condition the lease stipulates it should be in and subsequently, is likely to result in the Landlord serving dilapidations in a claim for damages.
Whilst it is imperative to assess the individual characteristics and obligations of each individual lease, the important clauses when it comes to dilapidations claims are as follows:
Definition of the Demise
This clause will stipulate the areas and elements of the property which the tenant is responsible for. This may relate to the whole of the property or it may just relate to the internal elements; in some cases it can be a combination of the two. It is important to know which elements fall within the tenant's liability and those which do not. There may also be a lease plan attached to the lease which can prove useful in establishing the extent of the demise. All too often we see dilapidations claims which contain items which are clearly outside of the tenant's demise and as such not their responsibility.
Repair Clause
The repair clause sets out the standard of repair to which the building must be maintained. The difference in the wording between these clauses can often be subtle but it can have big implications upon the standard to which the tenant is required to repair the building. For example, a subtle change in the wording can be the difference in the tenant being required to replace the carpet or just repair it.
Redecoration Clause
Most commercial leases will stipulate an express redecoration clause. Often it will detail periodic intervals or set years when the building is to be decorated throughout the course of the lease. It is also likely to place an obligation on the tenant to redecorate within the last year or last 6 months of the term. The redecoration clause may also stipulate exactly how the redecoration works are to be undertaken or even that they must be undertaken in colours approved by the Landlord.
Alterations / Reinstatement Clause
These clauses are often two separate clauses but they are often seen together. The alterations clause sets out if alterations are permitted to be undertaken by the tenant or more commonly if Landlords consent is required prior to the tenant undertaking any alterations. The reinstatement clause is a very important clause when it comes to dilapidations at lease expiry since under this clause, the Landlord can request that alterations undertaken by the tenant are removed and the property reinstated back the configuration which existed at lease commencement. The wording may also place certain obligations upon the Landlord i.e. to give the tenant prior written notice at least three months before lease expiry if he requires the property reinstating. Again, we often come across dilapidations schedules where the Landlord is requesting that alterations are removed but has failed to comply with the terms of the reinstatement clause.
Yield Up
This clause stipulates the requirement for the tenant to yield up the property and hand it back to the Landlord at lease expiry in accordance with the lease terms. Usually this means fully in repair, with alterations removed and decorated.
Landlords Right to Re Enter
Under this clause the Landlord has the right to enter and inspect the condition of the property and serve a Repairs Notice' on the tenant requesting that the tenant rectifies any breaches of covenenant. Often such a notice will seek to address the tenant's failure to maintain, repair and redecorate the property. It is usual for this clause to also contain a provision for the Landlord to enter the property and undertake the remedial works should the tenant fail to action them in a certain timescale. However, it is common to witness Landlord's serving extensive Repairs Notices on tenants for items which clearly go over and above the tenants leasehold obligations.
Given the complexities and subtle differences between individual leases it is imperative that occupiers receive specialist professional advice from a Chartered Building Surveyor in relation to their lease covenants and the implications this may have upon their liabilities in connection with dilapidations.
At 3SIXTY Real Estate we have entrenched knowledge of commercial leases and having successfully handled hundreds of dilapidations claims on behalf of Tenants and Landlords we are well placed to provide expert advice and early intervention on dilapidations matters in order to mitigate liabilities for occupiers.
Author: Dan Wallis, Associate 3SIXTY Real Estate www.3SIXTYrealestate.co.uk
For more information please visit: www.3sixtyrealestate.co.uk/dilapidations
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