Repairs and maintenance in commercial leases can cause confusion. Usually both the landlord and tenant will have responsibilities to uphold. This is a different position to that of a residential tenancy. With key considerations on health and safety, a commercial lease is governed separately and can largely vary between different properties and owners. It is therefore important to easily identify and understand the responsibilities of each party within the lease itself. Ambiguity within the drafting can later lead to confusion and disputes between the parties.
This article will explore the responsibility for repairs within a commercial lease, looking at both the landlord and tenant obligations.
Understanding repair clauses in a commercial lease
A commercial lease is a legally binding agreement between the landlord and tenant. The lease sets out the agreed provisions for the tenant’s occupation of the property. Alongside the headline arrangements such as rent, term, insurance and so on, the lease will provide for the responsibilities for the ongoing repair and maintenance of the property. This will be detailed for both the landlord and the tenant.
Who is responsible for repair in a commercial lease?
This completely depends on what the commercial lease says. The lease might cover the whole property or just part of it, and that makes a big difference in how things are handled. There are typically two types of leases, an FRI and IRI.
Fully Repairing and Insuring Lease (FRI)
One of the most common types of commercial lease is fully repairing and insuring lease, also known as an FRI lease. FRI leases ensure that the tenant is responsible for the repairs, maintenance and insurance of the property. This includes the arrangement and cost of repairs and maintenance to the property and cost of insurance. The landlord typically arranges the insurance with the tenant fully reimbursing as an ‘insurance rent’ under the lease.
An FRI lease can be used for both leases of whole and leases of part of a property. For example, a lease of the whole is usually a stand-alone property, such as an industrial unit, with a lease of part being within a building such as a ground floor shop with residential flats above. The definition of the property will clarify this structure within the lease. The landlord is typically responsible for any repairs that the tenant is not obliged to carry out.
Internal Repairing and Insuring Lease (IRI)
Alternatively a lease can be an ‘internal only’ demise. This is generally only used for leases of part of a property. This means that the landlord will retain responsibility for the repair of the structure of the building and the common parts. The tenant remains responsible for the internal repairs as defined within the lease. Ordinarily, a fair proportion of the landlord’s costs incurred will be recovered under the service charge.
What is the standard of repair in a commercial lease?
The standard of the repairs required throughout the term will depend on the wording in the lease. In consideration of the lease term, nature, location, age and current condition of the property, the standard of repair may be onerous.
Usually a commercial property is set to be maintained in a ‘good and substantial repair and condition’. However, where the property is older, or in disrepair, the tenant may be required to firstly ‘put’ and then ‘keep’ the property in a state of good repair. Effectively, this improves the property and then requires high maintenance throughout the term.
It is always advisable to view and inspect the property as close to completion as possible to grasp the subsisting condition. It may be wise to agree to a work around to limit the scope of repairs. A surveyor can provide a professional assessment of the repair and condition at the property. Additionally, the landlord may be willing to agree to undertaking repairs before occupation, or an incentive within the lease for the tenant. To note, if the property is newly constructed it is worth considering the liability for defects in the development and obtaining warranties from the contractors.
A schedule of condition can be provided for within the lease as a baseline to document the condition of the property at the outset of the lease. Typically, the tenant would not be required to put the property into a better state than as detailed within the schedule of condition. A schedule of conditions can contain photographs, words and documented evidence. This will need to be approved by both parties.
Can a landlord inspect repairs?
Generally, commercial leases reserve a right for landlords to inspect the state and condition of the property. The repairing responsibilities of the tenant are covenants under the lease. If they are not adhered to then the tenant is in breach of the lease agreement. The lease usually confirms that the landlord is able to serve a notice on the tenant detailing repairs that are substandard and require addressing. The tenant must resolve the repairs within a reasonable time from the notice otherwise the landlord can undertake the repairs and recover the costs for arranging them from the tenant.
Other tenant responsibilities to consider
The repairs and maintenance provisions under the lease will likely expand further to clarify additional requirements the tenant may have. This will always depend on the arrangements made and type of property, but the key responsibilities include:
- Repairing and maintaining the property.
- Keeping the property clean and tidy.
- Cleaning of windows.
- Ensuring no rubbish is left outside.
- Keeping accessways clear.
- Ensuring the property is not overloaded with heavy machinery.
- Complying with health and safety laws and regulations regarding the use of the property.
- Obtaining landlord consent for alterations and improvements of the property.
- Decorating the property throughout the term and at the end of the lease.
- Repairing and replacing damaged fixtures and conduits.
- Allowing landlord access for their inspection and repairs.
Any limitation on the tenant repairing obligations will typically become the responsibility of the landlord. This may be where the landlord looks to retain control over the building, or estate. The responsibility to reinstate and repair the property following damage or destruction by an insured risk tends to fall with the landlord from their management of the insurance policy. This should then be carved out of the tenant’s repairing obligation.
Responsibilities for repairs at the end of the lease term
At the end of the lease term, the property will need to be returned in the state and condition required under the lease. This means that the tenant’s repair and decoration responsibilities will need to be complied with. The landlord can inspect the property and issue the tenant with a schedule of dilapidations. The schedule of dilapidations will contain a list of items at the property in disrepair, a quantified cost for carrying out the repairs and any loss of rent for while these works are finalised. At this stage, professional advice should be sought by the parties to avoid a dilapidation claim.
Tips for avoiding disputes
There are various factors to consider before signing up to a commercial lease and it is vital to understand each party’s responsibilities early on. Ensuring everyone is onboard with the arrangements from the outset will help to avoid any later disagreements. It is always worthwhile utilising Heads of Terms to set out the agreed provisions before a draft lease is prepared.
How Goughs can help
Our expert Commercial Property solicitors are on hand to help you understand your repairing responsibilities. It is always beneficial to seek legal advice before committing yourself to a commercial lease. Please contact a member of our team who would be happy to help.
