The key lease covenants in a commercial lease and the law relating to their breach Flashcards
Who is generally responsible for repairing the Property? What kind of repairing covenant is it?
Tenant is responsible for repairs unless caused by an Insured Risk. It is a full repairing obligation covenant.
Who is responsible for insuring the Property and Common Parts?
Landlord
What is the meaning of a covenant to repair?
There must be disrepair first.
The tenant only needs to put the property in a state of repair as renders it fit for occupation.
Renewal or improvement are beyond repair.
Tenant not obliged to give back a wholly different property to that leased to them.
What is the difference between a repair covenant and a covenant to keep the property in good condition.
keep’ in good condition more onerous than repair. Can mean tenant is obliged to carry out work even if property not in disrepair.
Repair - who is responsible - lease of whole
In a lease of whole of the landlord’s title such as an office block, the definition of ‘Premises’ will refer simply to the title and postal address of the office block.
The tenant is responsible for the interior, exterior and structural repair.
Repair - who is responsible - lease of part
in a lease of part, say the fifth floor of the office block, the definition of ‘Premises’ will
specify the fifth floor of the office block.
The tenant is only responsible for
interior repair.
In a lease of part, other demises are the responsibility of their respective tenants. Areas of the building or estate used commonly by all tenants (‘common parts’), such as hallways, lifts and staircases, communal car parking, etc, are the responsibility of the landlord.
Although the landlord will bear responsibility for repairing the common parts, the landlord will recover the cost of doing so collectively from the tenants by way of service charge payments.
An FRI lease typically contains extensive clauses setting out the services and how they are charged.
Repairing covenant
The repairing obligation is set out as a tenant’s covenant in the lease. Without this, the tenant’s implied responsibilities as to the repair of the premises would be minimal, so the obligation is essential to a commercial landlord
Example of a full repairing covenant
‘to keep the Premises in good repair’
Don’t be misled by the word keep, as this obligation means that if the premises are not in good repair, the tenant must put the premises in good repair.
A tenant taking on a full repairing obligation should obtain a survey so they are aware of any major items of repair that may be needed
Example of a qualified repairing covenant
‘to keep the Premises in good repair but not to put the Premises in any better state of repair
than it was in at the date of this lease as evidenced by the Schedule of Condition’
The schedule of condition will contain photographs recording the state of the premises.
By definition, this is not an FRI lease repair covenant, and only likely to be accepted by an
institutional lender in exceptional circumstances (eg, a short letting or a difficult market).
What about inherent and structural defects
If the property is newly constructed, it may have inherent or structural defects that only come to light over time. These may cause issues that the tenant would be obliged to repair under its repairing obligation.
This is unfair, as the tenant is not responsible for them, and the landlord should have warranties from the contractors (the builder, structural engineer, architect, etc) that the landlord can rely on.
A tenant taking a lease of a newly constructed property should ensure that inherent and
structural defects are therefore excluded from the tenant’s repairing obligation and service charge contributions.
Who will be responsible for insurance - leases
A commercial landlord will almost always be responsible for the insurance of the building (even where it is a lease of whole). In keeping with the principles of an FRI lease, the cost of insuring will be recovered from the tenant under the lease:
- In a lease of whole, the landlord will insure the whole, and the sole tenant will refund the
landlord the whole of the insurance premium. - In a lease of part, the landlord will insure the whole, and each tenant will refund the landlord a proportionate part of the insurance premium.
The money that the tenant or tenants pay to the landlord will usually be referred to as ‘insurance rent’. The reason for this is covered in the chapter on termination of leases
What are insured risks? - leases
fire, explosion, lightning, earthquake, tempest, storm, flood, bursting and overflowing of water tanks, apparatus or pipes, damage to underground water, oil or gas pipes or electricity wires or cables, impact by aircraft and aerial devices and articles dropped from them, impact by vehicles, subsidence, ground slip, heave, riot, civil commotion, strikes, labour or political disturbances, malicious damage
These are the risks that will be covered by the insurance policy taken out by the landlord.
The definition may allow for the landlord to add other risks to the list from time to time.
They will also be excluded from the tenant’s repairing obligation, except in certain instances (eg, if the tenant’s negligence means that the insurance is not paid out).
What are alterations? - leases
Alterations are changes to the premises, such as reconfiguring the internal walls, opening up new windows, adding a mezzanine floor, etc.
If the lease is silent on alterations, then the tenant is free to carry out alterations.
The only restriction imposed by law is the doctrine of “waste” which means that the tenant cannot carry out alterations which reduce the value of the premises.
In practice, an institutional landlord will want to control tenant’s alterations to avoid issues such as the premises being less appealing to other future tenants.
Restrictions on alterations - leases
Typical provisions in an FRI lease:
* The type of alterations permitted (external or internal, structural or non-structural?)
* If they are permitted, whether landlord’s consent needed
* Whether they must be reinstated (ie, the premises returned to its original state) at the end of the lease term
The degree of control will likely depend on the type of alteration. For example, in an office lease, it is common to allow internal non-structural partitions to be altered to provide a different office configuration.
Absolute covenant against alterations - leases
An absolute covenant against alterations means that they are not permitted.
If the tenant wants to make an alteration covered by an absolute covenant, they can ask the landlord, but the landlord has no obligation even to consider such a request.
