In the last of the UKWA Bitesize Briefings Simon Edwards, Partner at Aaron & Partners tackled ‘leases, repairing and decorating obligations and dilapidations’ providing a quick run through of practical points to consider before taking a property lease, during and at the end of it.
Essentially before you sign anything you must read and understand what you are committing to. Often overlooked as tedious – Simon has never met any tenant who said ‘oh good I do enjoy a commercial property lease’ – the risk of major financial exposure is not always realised.
With a standard lease agreement, tenants are required to put the building in good repair and state of decoration (even if it isn’t that way at the start of the lease), keep it that way and leave it that way at the end. Take care over the decorating obligations as these are often overlooked. Sometimes these can be unrealistic such as the lease stipulating that a galvanised or powder coated steel structure must be painted, and sometimes expensive and disruptive such as having to repaint the whole steel structure of a warehouse in use and full of racking.
With a standard lease tenants must attend to any defects for which they are responsible and can arrange to get the work done themselves or hand it over to the landlord who will then claim the cost back from the tenant. Beware of repairing obligations or service charges may enable the landlord to charge tenants for repairs or property improvements (e.g. upgrading the property to comply with new legislation) from which the tenant may get no or limited benefit.
At the start of the lease there should be a survey done for repairs and these should be included in a Schedule of Condition coupled with a provision that the tenant isn’t required to leave the property in a better state than at the start of the lease. Decoration is a separate duty and not automatically covered. Repair and decorating obligations apply during the lease and not just at the end.
During the period of the lease keep an eye on what you need to do and plan towards the end of the lease a timescale for vacating the property (remember to leave enough time after customer activity ends) and doing the repairs.
If as a tenant you decide to do the work yourself it is a better way to control costs and reclaim VAT but then the landlord may not approve the work as compliant. If the landlord does the work, they may claim for the cost of work that isn’t actually done, estimates may well be overstated and the vat element won’t be recoverable if the landlord isn’t charging vat on the rent.
Limits on dilapidations claims may apply depending on what the landlord is doing with the property next – if demolishing, converting or reconstructing there may be no basis for a claim at all – so it is always good to establish the landlord’s intentions.
Simon advises that with a lease term of 5 years or less, it is better to have one without repair obligations. You may pay a higher rent but this is balanced out against the uncertainty of repairs.
To conclude, read the lease before you sign it and understand what is expected of you. Even better get your lawyer to explain first in practical terms the meaning and implications of all the important stuff.
If any members need advice on leases, do get in touch with Aaron & Partners.
In the meantime, catch up on all the useful legal guidance shared in the series of UKWA Bitesize Briefings. The six sessions running at an average of 20 minutes long are short enough to consume along with your lunchtime sandwich.