Facilities & leases
A lease is a maintenance contract as much as a rent agreement, and the maintenance half is where the surprises hide.
A commercial lease is a maintenance contract as much as it is a rent agreement, and the maintenance half is where tenants get caught out. The rent is on the front page in bold; the repairing obligations are buried in clauses that look like boilerplate, and by the time their full cost becomes clear, usually at the end of the term, it is far too late to negotiate them.
Most commercial premises are let on a full repairing and insuring basis, the FRI lease, under which the tenant takes on responsibility for repairs and for insuring the building rather than the landlord. The shorthand is useful but it hides the detail, because the real exposure lives in the exact wording of the repair, decoration, reinstatement and compliance clauses, not in the three letters FRI. Two questions decide most of it. First, what is the demised premises: a lease of a whole building can hand the tenant the structure, roof and foundations, whereas a lease of part usually limits them to the interior. Second, how is the repair standard phrased, because an obligation to keep the premises in good repair and condition is materially more onerous than repair alone, and can require work even where nothing has actually broken.
Where the money hides
The single largest hidden liability is dilapidations. At or near the end of the lease the landlord inspects and serves a schedule of dilapidations, a list of the tenant breaches of the repairing covenants with the cost of putting each one right, and often a claim for lost rent while the work is done. These figures can be substantial and they frequently shock tenants who assumed they had kept the place in reasonable order. The schedule can be served during the term and commonly up to around six months after it ends, and the parties are expected to follow the Dilapidations pre action Protocol, exchanging information and reasoned proposals, with something like fifty six days treated as a reasonable time to respond.
There are important limits on all this that a well advised tenant uses. Section 18 of the Landlord and Tenant Act 1927 caps damages for disrepair at the amount by which the breaches actually reduce the value of the landlord interest, so a huge repair bill does not automatically translate into a huge payout. Extraordinary repairs, genuine renewal or rebuilding rather than upkeep, remain with the landlord unless the lease very clearly transfers them, and broad wording alone is not enough to do that. And a schedule of condition, a dated photographic record attached to the lease at the start, limits the tenant obligation to returning the premises in no worse a state than that baseline, which is one of the most valuable protections available and one of the cheapest to secure at the outset.
Where the lease is silent, liability tends to default to the tenant, so gaps in the drafting are rarely gaps in the tenant favour. This is why the heads of terms stage matters so much: the scope of repair, the treatment of latent and inherent defects, and the standard to which the premises must be returned are all far cheaper to fix with a pen at the start than with a cheque at the end.
The clause people forget
The liability that most often slips through unnoticed is the building services, the ventilation, extract, heating and other plant that a lease may refer to as service media. These systems carry their own statutory maintenance duties, ventilation cleaning to the relevant standard, kitchen extract managed for fire risk, local exhaust ventilation examined on its statutory cycle, and the lease decides who has to fund and evidence all of it. On an FRI lease of a catering unit the tenant can find they owe not only the routine cleaning but a dilapidations claim for an extract system left greasy and uncleaned at the end of the term. Pinning down exactly which plant the tenant maintains, and to what standard, is one of the core repair obligations to check in a catering lease before signing rather than after.
Managing the risk down
The way to keep these obligations from becoming end of term shocks is to treat them as a live programme throughout the lease rather than a reckoning at the finish. That means running a planned maintenance regime aligned to the lease duties, keeping the test certificates, inspection logs and cleaning verification reports that prove the plant has been maintained, and dealing with disrepair as it arises rather than letting it compound. Where funds are tight the statutory and compliance critical items have to come first, which is the same discipline as prioritising building maintenance on a limited budget. Read the lease as the maintenance contract it is, secure a schedule of condition, keep the evidence, and the dilapidations conversation at the end becomes a negotiation you are prepared for rather than an ambush.
Questions
A full repairing and insuring lease puts repairs and building insurance on the tenant, but the real scope depends on the wording. A lease of a whole building can include structure and roof; a lease of part usually limits you to the interior. Read the definition of the demised premises carefully.
It is a list served by the landlord, usually at or near the end of the term, of the tenant breaches of the repairing covenants with the cost of remedying each and often a claim for lost rent. The figures can be large, so the wording of your repair clause matters a great deal.
The most effective step is agreeing a schedule of condition, a dated photographic record attached to the lease at the start, so you only have to return the premises in no worse a state than that baseline. The Section 18 cap and the limits on extraordinary repairs also help.
It depends on how the lease treats building services or service media. On an FRI lease the tenant often carries the cleaning and statutory testing of ventilation and kitchen extract, and can face a dilapidations claim for leaving it uncleaned. Clarify this before signing.
Treat the lease obligations as a live maintenance programme: run planned maintenance aligned to the lease, keep test certificates, inspection logs and cleaning verification reports, and deal with disrepair as it arises rather than letting it accumulate for the final schedule.
Phoenix Duct Clean · by the numbers
A greasy, undocumented extract system is a common dilapidations item. Talk to Phoenix about cleaning and documenting ventilation so you can prove the duty was met.