Ending property leases for HR professionals – Part 2: The end of leases

17 / 11 / 2016

Wedlake Bell commercial property partner Suzanne Gill is providing a series of articles for HR professionals to give them a better understanding of the issues accompanying surplus premises – a task that often becomes the responsibility of HR. In the second in this series, Suzanne looks at the unexpected aspects of bringing leases to an end.

Most English leases oblige the tenant to hand their premises back to the landlord in good repair and condition. This can mean giving them back in a better state than they were at the start of the lease. The lease will often specify redecoration in the last year of the term, commonly allowing the landlord to select the colours used, require new carpets and for any alterations, such as partitioning, to be removed. These works are usually called “dilapidations”.

Sometimes the lease puts limits on the repairing obligations. The lease might say that the repair should be no worse than the state recorded in a schedule of condition, usually a collection of photos taken at the start of the lease term. This is an important concession for a tenant, and the schedule of condition should be stored carefully with the other title deeds.

The works to restore the premises can be expensive and should be provided for in the tenant company’s accounts.  Often (but not invariably) the cost is negotiated between the parties, and the tenant pays the landlord money to do the relevant works after the tenant has moved out. However there are important restrictions on what the landlord can charge for, both as a result of case law and contained in the Landlord and Tenant Act 1927.

If the landlord is going to demolish the building when the lease ends, he can’t require the tenant to pay for the cost of redecorating it.  Equally if the landlord plans to improve the building over and above the standard of repair required by the tenant, the landlord can’t charge for tenant works which would be superceded by the landlord’s plans.  For example, should an external cornice be returned clean and painted, or fully restored to Victorian glory? Where there are two ways of carrying out a certain repair, the landlord can only charge for the cheaper method. It’s a complex area so getting specialist advice is essential.

Best practice suggests that the discussions about the condition of the premises should start six months before the end of the lease. On a practical level is better to find out what the landlord requires than have your facilities management team spending time on jobs that may turn out to be unnecessary. Beware of waiting for the landlord to initiate the conversation – one cost the landlord can claim for is rent for the period of time it will take for the works to be done after the lease has ended.