Commercial Leasehold Repair - an area of uncertainty

Rollits' Property Dispute Resolution Team has in recent months seen an increase in the number of dilapidations disputes arising from commercial leases.  Whilst dilapidations claims can vary hugely in terms of the value of the claims, the basic principles remain the same.

In an upcoming series of articles, we will discuss dilapidations claims in detail, identifying how dilapidations claims arise, the remedies available to Landlords and also the defences available to Tenants.  In this article, however, we will be going back to basics, considering the issue of repair and some common repair-related commercial lease terms.

A failure to fully understand common leasehold repair terms, and in particular appreciate what obligations flow from a tenant's repair obligation, can result in a nasty shock at the end of a tenancy. An appreciation of its repair obligation, on the other hand, should mean that a commercial tenant is better placed to appreciate what works they are required to undertake, if any, to comply with their repair obligations during the term and budget accordingly throughout the term to ensure that funds are available to meet any final 'departure' repair works at the end of the term.

Keep in repair - the common misunderstanding

It is common for a lease to oblige a Tenant to "keep the property in repair", or words to that effect. The mistake that many Tenants make is that they assume that this means that they are required to keep the property in no worse condition than it was in when the lease started. 

However, an obligation to "keep the property in repair", without any limitation by reference to a Schedule of Condition, obliges a Tenant to put a property into a state of repair if it is in a state of disrepair at the commencement of the lease. Consequently, if a tenant enters into a long lease of what is, at the outset, a dilapidated property, an obligation to keep the property in repair will mean that the Tenant is required to bring the property up to full repair. This could be hugely expensive.

Other leasehold repair terms

A covenant "to keep the premises in repair" will generally be fulfilled by keeping the property in substantial repair. Minor deterioration/disrepair will ordinarily not amount to an actionable breach.

 "Good tenantable repair" has been held to be such repair as, having regard to the circumstances of the property, would make it reasonably fit for the occupation of a reasonably minded Tenant of the class who would be likely to take it.

In the absence of an explanatory wording or any express limitation on the repair obligation within a lease,  however, it is difficult to say with any certainty as to how the Court will interpret the scope and standard of a repair clause.

But what is "repair"?

The phrase "repair" has no special or fixed meaning in English law. Instead, and rather unhelpfully, the phrase is interpreted according to what the parties are taken, judged objectively, to have intended.  Again, it can be difficult to say with any certainty as to how the Court will determine what the parties intended when entering into a lease.

It is because of the uncertainties surrounding "repair" and how a repair obligation will be interpreted that parties should, as much as is possible, seek to minimize any uncertainty at the lease drafting stage. A Schedule of Condition, whilst resulting in an additional cost at the outset of a lease, can be invaluable in providing a clear record of the standard of repair and condition that a property must be in for the tenant to satisfy its repair obligation, minimizing the risk of a protracted and costly dispute at a later date.

Finally, whilst remedies available to a Landlord arising from disrepair will be considered in a future article, I take the opportunity here to highlight a consequence of disrepair that can sometimes be overlooked. If a Tenant is able to remain in occupation of a property after the expiry of fixed term by virtue of Part II Landlord & Tenant Act 1954, a Tenant may take the view that the landlord will take a relaxed approach to lease repairs, attending to the issue if and when the Tenant decides to vacate, that the lease will continue beyond the fixed term and a relaxed approach can therefore be taken to attending to repair issues. However, if a Landlord wishes to recover possession of the property, a Landlord may issue a hostile section 25 notice ending  the tenancy, relying upon a Tenant's failure to fulfill its repair obligations as a ground to oppose the grant of a new lease under section 30(1)(1) Landlord and Tenant Act 1954. 

If you have any queries arising from this article, would like to suggest a topic for a future article or wish to discuss a contentious property issue, contact Chris Drinkall, Head of Rollits' Property Dispute Resolution Team on 01482 337367 or christopher.drinkall@rollits.com

Posted on: 19/10/2016

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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