Top Tips for Tenants

There are many matters which a prospective tenant should consider before taking on a new lease, in order to mitigate the risk of potential unknown and costly liabilities in the future.

The below list provides just a few examples of some of the important matters a tenant should consider.

1. Repair obligations

A tenant’s repair obligations should always be checked carefully with reference to the exact extent of the property being let so that a tenant is aware of the full extent of its repair obligations from the get-go. I have experience of tenants being surprised that they are responsible for maintaining the structure of the property, after letting the property for over 8 years! If a tenant doesn’t adhere to its repair obligations, it exposes itself to the risk of being served with a claim for dilapidations at the end of the term, which could prove costly.

A landlord’s preferred form of commercial lease will require a tenant to put and keep the property in good repair and condition. Such an obligation requires a tenant to put the property into good repair and condition, even if it is not in very good condition when the lease is granted. This could render a tenant liable for costly repair works, beyond mere wear and tear, especially if the obligation to repair includes the structure of the property.

How can a tenant’s liability be mitigated? Firstly, a tenant should always inspect the property to check its current state of repair and condition. If the property is in poor condition, consider negotiating with the landlord for the repair obligation to be limited to the condition of the property at the date the lease was granted. This is usually documented in a photographic schedule of condition which is then annexed to the lease. Further, the tenant should consider what is to be included in the definition of ‘property’, and it may be possible to negotiate with the landlord for the structure of the building to be excluded and for the landlord to retain liability for repairing the same.

2. Service Charge Cap

If the lease is of part of a building, or a unit on an estate, it is likely that the landlord will provide certain services for the benefit of its tenants, such as the repair and maintenance of structural parts, landscaping, lighting of common areas and gritting car parks. It is usual for a landlord to recover the costs of providing such services from its tenants via a service charge. It is often difficult to ascertain or predict at the time of taking a lease, what service charges a landlord may pass on to tenants during the term of the lease and whether any significant expenditure will be required. One of the ways to mitigate this potentially unknown cost from the outset is to negotiate a service charge cap with the landlord – the tenant is then only committing to pay up to the agreed cap in any given year of the lease.

3. Approval of fit-out works/signage

It is usual for a lease to require a tenant to obtain landlord’s consent before carrying out alterations to the property and/or putting up trade signage. The lease will also usually oblige the tenant to pay any costs which the landlord incurs in considering and, if applicable, granting its consent to the tenant’s proposal. It is a good idea for tenants to seek to obtain landlord’s approval to any proposed fit-out works and signage at the same time as negotiating the lease, so that they don’t need to apply for the landlord’s consent at a later date, at additional cost, and the tenant also then has the comfort that the works are approved by the landlord at the outset and so avoids future delays in applying for consent before such works can commence.

4. Break

Particularly if a lease is for a longer term, tenants may wish to negotiate including an option in the lease to terminate the lease early. The landlord may be willing for the tenant to have such right to break on certain dates during the term of the lease – ‘break dates’ – which are often linked to the dates on which the annual rent is due to be reviewed. If break dates are agreed, it is common for the landlord to insist that the tenant meets certain conditions to be able to break the lease on those dates. Such conditions should be analysed carefully. Some typical conditions are:

1. being up to date with ‘all sums due’. Such sums should be limited to amounts which are certain and/or have been demanded by the landlord otherwise there is a risk that the condition is not met because the tenant hasn’t paid a sum which was technically due under the lease but that it did not know about;
2. the tenant vacating the property. The wording of such condition should be carefully checked to ensure the tenant leaving behind small items/belongings does not invalidate the break.

Every property and each lease is different, so it is important that you obtain legal advice tailored to your particular situation and if possible, prior to agreeing Heads of Terms with a landlord.  

If you are looking for advice on your commercial lease, or looking for assistance with any lease matter, please contact Bethan Blackburn by email here or on 02746 999398 or another member of the team.

Author: Bethan Blackburn

11 December 2020