Making sure a commercial property is well maintained is one of a landlord’s key priorities, and it is almost as important as receiving the rent. Under a full repairing and insuring lease (which we discussed in this article); the tenant is obliged to keep the property in a good state of repair – but what can you do if you discover the property is being neglected?
‘A commercial landlord might assume that it will be straightforward to enforce the repairing obligation, but remedies are more limited than they might expect,’ says Sanjay Chandarana, a Partner in the dispute resolution team at Ingram Winter Green LLP. ‘A pro-active landlord will work with their property lawyer to make sure any issues with repair are identified and resolved quickly and effectively.’ The challenge is to establish the best course of action, given the particular circumstances.
A pro-active landlord will work with their property lawyer to make sure any issues with repair are identified and resolved quickly and effectively.
Injunctions and damages
A breach of a lease obligation is a breach of contract. In contract law, the two key remedies are: an injunction to compel the defaulting party to fulfil their obligations; and damages to compensate the innocent party for any loss. In the context of a lease, these are both of limited use.
It is for the court to determine whether to grant an injunction (referred to as an order for specific performance) and it is unusual for a judge to do this to enforce a repairing obligation.
Damages are restricted by statute, and the most a landlord can recover is a sum to reflect any reduction in the value of the landlord’s interest in the property caused by the disrepair. It can be difficult to establish that there has been a significant impact on the landlord’s investment value, especially if the lease still has a number of years to run and the landlord has no immediate plan to sell their interest.
In addition, if there are more than three years of the lease term left, the landlord requires permission from the court before it can even commence a damages claim for disrepair, and the tenant has the right to object.
Forfeiture
The landlord’s right to terminate early by forfeiting the lease is a valuable tool. Often, the threat of forfeiture is enough to encourage the tenant to resolve any breach of covenant. Forfeiture for non-payment of rent has been prohibited during the Covid-19 pandemic, but landlords can still forfeit for breach of other covenants. In practice, this could be a gamble for a landlord who does not really want to be left with empty premises in a poor state of repair and a rates liability.
Right to enter and undertake works
One effective practical remedy is for the landlord to enter the property, undertake the required repairs and recover the costs from the tenant. To do this, the landlord must have a clear ‘self help’ right set out in the lease. Your lawyer will be able to check whether the lease has the appropriate clause(s). The lease should also make clear that the costs are payable by the tenant as a debt, rather than as damages, to avoid the statutory cap on damages for disrepair.
Exercising a break clause
If a tenant wants to get out of the lease early by exercising a break right, this can be a useful lever for the landlord to ensure that the tenant has fulfilled the repairing obligations.
However, if there is a dispute, the court will closely examine the wording of the lease, which will set out some conditions about how the property must be left. As a minimum, it should say that the tenant must give up occupation of the property or it may require the tenant to give ‘vacant possession’. The lease may also provide that there must be no material breaches of covenant. These two requirements operate separately and an obligation to give vacant possession alone will be insufficient for the landlord to insist on the property being left in good repair.
Giving vacant possession means leaving the property empty, so that the landlord can easily re-let it but it is not always clear how much the tenant must remove to satisfy the test. The Court of Appeal recently considered the point in a case where the tenant was unsure, so took out more than the landlord expected, including things like lighting and heating. As a result, the property was left in an unusable state. The court held that the tenant had given vacant possession and any issues with the physical state of the property were a separate matter (Capitol Park Leeds plc v Global Radio Services Ltd [2021] EWCA Civ 995). Cases like this demonstrate how important it is for both landlords and tenants to obtain sound legal advice about what is required to comply with a break option.
Dilapidations at the end of the lease
The landlord has a final opportunity to enforce repairing obligations at the end of the lease. The tenant must hand back the property in a state that complies with the covenants in the lease and there is usually a negotiation about disrepair (referred to as ‘dilapidations’). In practice, this generally concludes with the tenant paying an agreed sum to reflect the cost of remedying the disrepair. Again, good legal advice is invaluable, both to highlight the best negotiating points for each side, and to ensure that the final settlement is properly documented.
How we can help
Enforcing repairing obligations sounds simple but can be complex in practice. Consulting your solicitor will mean you know what rights you have and how to use the best tactics to get the end result you want.
For further information, please contact Sanjay Chandarana in the litigation team on 020 7845 7400 or email sanjaychandarana@iwg.co.uk.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.