End of lease repairs – What do landlords need to know

The end of a tenancy can be a stressful time for landlords, faced with a range of repairs before they can relet the property.

“Dilapidations” is the term generally used to refer to the process a landlord needs to follow to recover any loss they may have suffered as a result of the tenant’s failure to return the property at the end of the lease, having reinstated any items of damage or disrepair in accordance with the repairing standard imposed on them under the terms of the lease.

Tenants often fail to realise the importance of the wording of their lease and exactly what obligation they have accepted regarding the state of the premises to be returned to the landlord. They will be well aware of costs involved such as rent, business rates, utility bills, any service charge and their own fit-out costs, but it is easy to overlook a potential dilapidations liability.

At the end of the lease, especially if their business has been struggling, this cost is likely to be furthest from their minds. However, it is very much a legal commitment they cannot easily avoid when the landlord enforces the terms of the lease, a contract is a contract, agreed to at the start by both parties, so the exact wording of the lease is very important.

Estimate the cost

If the repairing clause and dilapidations clause are clear from the outset this allows the tenant to make an informed estimate of their liability during and at the end of the lease. This is a complex exercise and some factors which will enter into that equation are:

Here, Oliver Maxwell, senior associate and solicitor specialising in commercial landlord and tenant disputes at Nelsons, provides helpful guidance for landlords and explains key options that a   landlord may be able to take if repairs are beyond the realms of reasonable.

The subject of repairs between landlords and tenants is a complex one says Mr Maxwell, with key factors to consider on both sides. At the end of a tenant’s lease, the landlord may find the care taken by the tenant of their property does not meet expectations. 

This means that disputes may arise inflicting both time and costs onto the landlord, not to mention the possibility of an extended void period when the property remain empty.

While there are no fixed obligations in these circumstances says Mr Maxwell, there are a number of things to bear in mind:  

A tenant’s legal obligation around property condition within a commercial lease varies depending on what the lease says and whether the standard of repair is linked to a schedule of condition at the start of the term. For example, it may be the tenant is obligated to keep the premises in ‘no worse condition’ than the condition set out within the schedule or, where there is no schedule, a general obligation to keep the premises ‘in repair’.

However, an obligation to keep ‘in repair’ and an obligation to keep ‘in good condition’ mean different things – as does an obligation to ‘decorate’ and/or ‘redecorate’, usually at the end and on certain anniversaries of the term, he says.

Conditions in the lease

The definition of what is being demised, or transferred, under the lease will also be important when it comes to ascertaining what the tenant’s obligations are. For example, an ‘eggshell’ lease is usually limited to the interior wall and floor coverings only and does not include any ‘structural’ elements of the building. The tenant, therefore, will not usually be obligated to repair any part of the structure. 

Conversely, where the demise includes the structural elements of the building, there will often – but not always – be an obligation for the tenant to repair such structures. These are often referred to as ‘full repairing leases’. At the end of the term, the landlord will commission a terminal schedule of dilapidations to tell the tenant what, in their view, the tenant needs to do to comply with their repair, and ‘yielding up’, obligations. Breach of these obligations can ultimately lead to a claim for damages based on breach of contract, such as breach of the terms of the tenant’s lease.

How is a ‘good’ standard of repair defined?

The word ‘repair’ is often accompanied by other adjectives or phrases. But the courts have consistently stated that these adjectives make little to no difference to the obligation in question, provided it discloses an intention to repair. ‘Good’ repair, ‘tenantable’ repair, ‘substantial’ repair, and ‘sufficient’ repair are a few examples, and the permutations are potentially limitless.

That being said, all these modifications mean the same thing and it is generally accepted the tenant should undertake any work where – in addition to the age, character and locality of the property – it would make it fit for occupation by an incoming tenant on the same terms as the existing tenant.

Landlord options

If repairs are not to a standard the landlord requires, again much will depend upon the specific terms of the lease. This is what governs the relationship between the parties, but there are some commercial leases that include a Jervis v Harris, or ‘self-help’, clause. 

These clauses allow a landlord to serve notice on the tenant, setting out the repairs required and giving a timescale for them to be completed. Once the notice has expired, the landlord may enter the property to carry out the requisite repairs and recover any costs of doing so from the tenant as a debt.

Aside from a Jervis v Harris clause, a tenant’s breach of repairing obligations may allow a right to forfeit the lease and/or claim damages.

However, caution must be exercised when attempting to forfeit and/or seek damages where the tenant can claim the protection of the Leasehold Property (Repairs) Act 1938 (LPR). The LPR Act will be engaged when the lease is granted for a term in excess of seven years and has three or more years remaining. 

Where the LPR applies, the landlord must first serve notice under Section 146 of the Law of Property Act 1925 (LPA) to identify the breach(es) that have taken place, for example a breach of the repairing agreement, and give the tenant a reasonable amount of time to remedy them. The notice, however, must contain a statement, ‘in characters no less conspicuous than those in any part of the notice’ that the tenant may claim the benefit of the LPR Act. If the tenant then serves a ‘counter-notice’, the landlord must apply to the court for permission before forfeiting or claiming damages.

Legal action

Parties involved in a dispute will always be expected to comply with any relevant pre-action protocol under the Civil Procedure Rules before embarking on legal proceedings. In this context, this would involve the landlord writing to the tenant to set out the case and the legal basis of any prospective claim.

Other than in proceedings for forfeiture, where the landlord must be very careful not to do any act that may ‘waive’ their right to forfeit, such conduct will be expected and could be interpreted as a ‘threat’ of legal proceedings.

As to ‘when’ such a threat should be made, it is beneficial for those involved in commercial leases to maintain an open discourse, which can help prevent grievances from escalating into a legal forum. Parties should speak to each other to try and reach an amicable solution. However, if one party is not engaging, it is not at all inappropriate for the other party to assert their legal rights via their lawyers.

Conclusions

Dilapidations disputes are often complex and high value. As such, it’s well worth seeking good legal advice before either side commits to a commercial lease, so that each party understands their respective rights and obligations

Nelsons – https://www.nelsonslaw.co.uk/landlord-tenant-issues/ – was established in 1983 and provides support to businesses, individuals and families with their legal and investment needs. 

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