Bulletins | September 25, 2017

Tenant focus

“Even if you think it ain’t broke, don’t become liable to fix it” – what tenants should consider when negotiating the repairing obligations in their leases

A tenant will almost always be under some form of obligation in its lease to “keep the property in repair” during the term of the lease. On the face of it this might sound simple enough, and one might be tempted to think it amounts to no more than a promise on the part of the tenant to return the property to the landlord in no worse repair at the end of the lease.

However, prospective tenants should be alive to the important fact that an obligation to “keep” property in repair is actually a tenant obligation to “put and keep” property in repair, even if it is in disrepair at the start of the lease and before they take possession.

In practice, this means that if the property is in a state of disrepair at the start of the lease then a tenant could be taking on a considerable liability, either in the form of carrying out necessary works to bring the property into repair during the lease term, or in having to make a dilapidations payment to the landlord at the end of the term in lieu of carrying out any such works. If the landlord wishes to enforce the lease repairing obligation in this way, then ignorance of the difference between “keep” and “put and keep” in repair will be no defence – and it could lead to a potentially nasty surprise when handing back the keys.

Every tenant should therefore give careful consideration both to the existing condition of the property before they take the lease, and whether they want to try to limit their repairing obligations under it – even (and perhaps especially) if they might be relaxed about the existing condition and otherwise happy with the approach that “if it ain’t broke, don’t fix it”.

Whether a property (or any particular fixture or fitting that it contains) can be said either to be in repair or disrepair will depend on a whole range of different factors, including (but not limited to) its nature and age, the use to which it is put and its location. If a tenant wishes to limit their repairing obligations, however, then they should carefully consider the following at least:

  • Whether a schedule of condition should be attached to the lease and for the lease repairing obligations to be qualified by reference to it. A schedule is a series of photos that both the landlord and tenant agree provide evidence of the condition of the property at the start of the lease, with the tenant usually then under an obligation only to return the property in no worse repair than this.
  • The definition of “the property” in the lease, as this will detail the precise extent of the property that the tenant is obliged to keep in repair. If a tenant is taking a lease of the entire structure of a property, then the potential repairing liability is significant compared with a lease of only the internal, non-structural parts of a property. If a lease of the entire structure of a property is being contemplated, then the tenant should consider commissioning a survey to satisfy itself as to its current state of repair. In this regard it is especially important to consider those parts of the property that are normally unseen. For example, drone surveys to establish the state of repair of a roof are increasingly common (and may also be considered where a schedule of condition is used).
  • Whether there will be a service charge in place. Even if a lease is of an internal, non-structural part only of a property, a tenant could still be liable to contribute to the costs of repairs to the structure where those repairs are carried out by the landlord and the landlord has a right to recover such costs from the tenant under the service charge. If there is such a right then the tenant should check how the proportion of the costs that it must contribute is calculated, whether the contribution can be capped and if there are any costs that the landlord should not be entitled to recover, such as the cost of repairing any inherent construction defects.
  • The precise wording of the repairing obligation. Often the obligation to “keep the property in repair” is modified by the words “in good repair” or “in good and substantial repair”. It is questionable whether these words increase the level of the obligation and there is case law to suggest that generally they do not. However, any reference in the draft lease to “good repair and condition” or to “repair and renew or replace” should be treated with caution by the tenant or resisted. The former can require that works be carried out even if there is no disrepair (for example, because the property or any particular part of it is in repair but not actually fit for purpose) while the latter could oblige the tenant to improve the property because they can be said to go beyond repair in the stricter sense of simply making good or replacing like with like.

It is wise for any tenant to consider these issues before entering into their lease and again as the end of the term draws near. Tactically there can be different approaches to repair and dilapidations at the end of the term of a lease and so tenants should consider exploring these options at the earliest opportunity to ensure the best possible outcome.