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Commercial Property Leasing - notes
Repairing obligations
A modern commercial lease contains what is known as a "tenant’s full repairing and insuring obligation". Typically, this binds the tenant to maintain, repair and renew if necessary, irrespective of the cause of damage. The words in Italics
have very specific technical meanings, and specialist advice is
essential to ensure that the tenant understands the position and that adequate protections are put in place.
For example, a tenant should not be liable for maintenance etc. where damage is caused by a risk, which should be covered by the Insurance policy the Landlord is obliged to take out. The tenant should not have to repair etc. where damage is caused by the Landlord in the course of inspection. A standard lease drafted by a Landlord's lawyer will not contain these protections and they must be drafted in by the tenant's lawyer, who has to be alive to the finer points of drafting
Landlord's didn't used to expect short leases to be on a full repairing and insuring basis. The tenant would normally be liable for internal repairs only. There has been a disturbing change in recent years, however, which seems to have been given some strength by tenants agreeing to full liability, in some cases with inadequate legal advice.
Rent collection
Landlord's regularly charge fees for collecting rent even though it is collected by direct debit or standing order. This is often allowed for in the lease and the tenant has no option but to pay unless it is revised out at negotiation stage.
Destruction of Property
The common law provides that if a property is destroyed through no fault of the landlord or tenant, the lease comes to an end.
Modern full repairing and insuring leases are normally drafted on the basis that this does not apply. Instead, the lease continues subject to an abatement of rent while the property cannot be occupied. The landlord normally insures against loss of rent (at the tenant's expense). Some leases provide that if the property is not reinstated within a set period of two or three years, either party can terminate the lease.
It is possible, therefore, that a tenant could have to find alternative accommodation for a reasonable period, but still be liable for rent again after reinstatement some years later. This issue has to be addressed and discussed at the negotiation stage.
Termination of leases
Most commercial leases are for a fixed period and terminate on a certain date, when the tenant is expected to leave, having complied with all obligations. This is not the full picture. The lease does not terminate automatically. In fact, it renews automatically if nothing else is done.
Unless the landlord serves a notice to quit on the tenant or the tenant serves a notice of termination on the landlord giving the statutory notice ( normally 40 days) the lease simply continues for a further year ( or shorter period if the lease was for a shorter period) on the same terms including rent.
This renewal may be acceptable to both parties or may be beneficial to one. If it is not realised in advance, however, it can be a nasty shock to the landlord, who was ready to relet at a higher rent or to the tenant, who has moved out.
This 'automatic' renewal (called 'tacit relocation') continues until the appropriate notice has been served. Leases should be reviewed well in advance of termination dates. This avoids the problem outlined, but also allows the tenant time to comply with his obligations in an orderly fashion. He can avoid the expense of a schedule of dilapidations (statement of repairs etc. that the tenant is liable for). It may be better for the tenant to do work in advance on a planned basis than to move out and allow the landlord to undertake works and bill the tenant.
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