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The links to our previous articles by Real Estate partners Emily Carey and Nicola Wood can be found here:
Pastures New? – Key Points to Consider for Commercial Lease Terms
What Kind of Lease Do I Have and Why Does It Matter?
The Departure Lounge – Planning a Lease Exit
Breaking and Leaving – Exercising a Break Clause
The prospective tenant must remember that the agent is acting in the best interests of the landlord, not the tenant. Whilst there is overall common ground to secure good premises for a good tenant, the agent has no obligation to explain or soften the impact of various “standard” terms in the HoTs. Some of these terms can have a very serious financial impact on the tenant.
It means a “Full Repairing and Insuring Lease” but in turn, what does that mean? Whole chapters have been written on the interpretation of repair covenants, but in broad terms, the usual “full repair” clause means that the tenant takes on the property as it is, but has to give it back in good repair even if it was not in good repair at the start. This may include machinery and plant, roofs and walls.
If the lease is “internal only” the tenant’s direct liability will generally be for internal, non-structural walls, flooring and surfaces only, but it is likely that the tenant will have to contribute indirectly to the repair and condition of the whole building via a service charge. It is quite often the case that there is no express liability on the Landlord to keep the rest of the building in good repair and condition and the service charge clause may have some pitfalls to watch for.
The “Insuring” part usually means that the tenant must reimburse the landlord for the cost of insuring the demised premises. It is common for the landlord to take out and maintain the policy. The lease will contain detailed provisions about what happens in the event of damage by an insured risk and may also cover damage by uninsured risks.
Just because the agent’s marketing terms say FRI lease, the tenant can negotiate on this and other terms. It should be remembered that concessions by the landlord may impact the annual rent.
The RICS Code for Leasing Business Premises, England & Wales 2020 states that tenant’s repairing obligations should be appropriate to the length of the term and the condition of the premises. Where a building is not already in good repair and/or the term is relatively short, an FRI lease may well not be appropriate.
If FRI is not appropriate, the usual alternative is to limit repair to the current condition via a Schedule of Condition clause in the HoTs. Professionally done, (not just a set of blurry photos from your phone) such a Schedule will record the detailed condition of the property as the base standard of repair throughout the term and in particular at the end of the term. The tenant may be required to contribute to the cost of preparing the Schedule. It is a commercial decision whether this route is good value as it limits the on-going and end of term financial downsides versus an unwelcome upfront cost. The tenant may choose to kick that risk down the road and hope for the best!
If it is a lease of part, the tenant should look for an express obligation on the landlord to keep the rest of the building in good repair and condition.
The tenant should require the landlord to provide evidence that the mechanical, electrical and plant elements of the property are in good and safe condition. The tenant should also establish at the HoT stage, that the property is currently compliant with statutory requirements eg an asbestos management plan, adequate fire safety certification etc. If the landlord does not have these, the lease will make the tenant responsible for all statutory compliance.
This slightly archaic language refers to the obligations of the tenant when giving the property back to the landlord, usually at the end of the term.
The yield up clause usually requires the tenant to return the property, having complied with all the terms of the lease – hence the need to be careful about the lease repair obligations at the outset. The obligations will refer to various clauses, but mainly:
In addition to the lease, where alterations have been allowed via a separate licence, that licence may contain reinstatement provisions. These usually include an obligation to remove all alterations and give the property back as it was before the work. Clearly where the works have improved the property, this is not rational and should be covered in the wording of the HoT and eventual licence for works.
The Lease Code suggests that the HoTs must specify if there is to be a general lease requirement to reinstate after alterations. As reinstatement is onerous for the tenant, it could have a lowering impact on the rent. The Code also suggests that “reasonableness” should be the measure of whether alterations must be reinstated.
For further information and advice, please contact Emily: emilycarey@bexleybeaumont.com | 07300 927480
Or, please contact Nicola: nicolawood@bexleybeaumont.com | 07349709259
