The content and wording of a Lease of Commercial Premises will determine the respective undertakings and obligations on the Landlord and Tenant as agreed between them at Lease commencement.
In an ideal world, all the parties will understand and perform the Lease covenants – the Landlord will be paid the appropriate rents, service charges etc, the Premises will be maintained, repaired and decorated as stipulated by the Lease Covenants, and the Tenancy will run through to the end of the Lease Term.
In the real world, a range of complicating issues can arise – the Tenant may seek to make physical alterations to the Premises, the Tenant may wish to sub-let some or all of the Premises, the Landlord may be concerned that the Premises are not being maintained by the Tenant to the required standard of repair, or that the Tenant is otherwise in breach of one or more of the Lease Covenants. Owing to the unique nature of each Property and Tenancy Agreement, it is essential that copies of the Lease is made available to the Surveyors acting for both parties, together with any Licences, agreements or other relevant information. Only by reference to the whole of the Lease can the parties’ legal obligations be fully appraised, and the specific contractual obligations on each party determined.
Services for Landlords – Schedules of Dilapidations
At Beagle Surveyors we have extensive experience in representing Landlords’ interests. It is most common for a Chartered Surveyor’s services to be engaged at, or shortly before, the termination of the Tenancy or Lease.
A Landlord who does not have the benefit of in-house property advisors will commonly instruct a Chartered Building Surveyor to undertake an inspection of the Premises in order to prepare an itemised Schedule of Dilapidations to be served on the Tenant. The experienced Surveyor will review the state of the Premises, and compare this with the standard envisaged by the the wording of the Lease. The Schedule will detail all those matters which, in the the Surveyor’s professional opinion, fall short of or contravene the intentions of the Lease, which may extend to standard of repair, decorations, services, alterations (authorised or otherwise), or other breach of covenant.
A Terminal Schedule can be served during the currency of the lease, in the last six months before termination, in which case the Tenant would usually be expected to undertake the required works before Lease End, thereby discharging the Lease obligations in respect of the condition, the state of repair and the standard of decoration of the Premises at termination.
Listed below are a number of (simplified) scenarios which may obtain at the end of the Lease term or Tenancy:
- the Tenant has repaired and maintained the Premises to the required standard, and has otherwise surrendered up the Premises in accordance with the Lease provisions
- a Schedule of Dilapidations has been served on the Tenant, but the validity of some or all of the items therein are disputed by the Tenant or his Surveyor, and disgreement exists between the parties
- a Final Schedule is served on the Tenant once the Lease has terminated and the Tenant has quit the Premises. The Landlord and/or his Surveyor however do not consider that the Tenant has fully discharged his obligations under the Lease provisions.
In the latter two cases, the Landlord cannot require the now-departed Tenant to make good the Premises to the required standard, and instead would usually pursue the Tenant for financial damages, calculated to restore the Landlord to the position he would have been in, had the Tenant left the Premises in the contracted condition and repair etc. How this figure (‘quantum of loss’) is determined depends on a number of factors:
- the aggregate of the cost of undertaking works to bring the Premises to the standard required by the Lease and, where appropriate, consequential losses, e.g. the value of Rent foregone by the Landlord while such works are undertaken, lost Service Charges etc.
- interpretation of the scope, meaning and intention of the respective Lease Covenants
- the Landlord’s future intentions for the Property (e.g. re-let, refurbish, redevelop)
- the Landlord’s costs incurred arising from Breaches of Covenant (Solictor’s and Surveyor’s fees, for instance – although entitlement to recover such costs from the Tenant will usually rest on the Lease wording)
In the majority of cases, through a process of negotiation between the parties or their Consultants, a financial settlement is reached. In some instances, the opposing parties may be unable to reconcile their differences, in which case the matter may ultimately be set before the courts to determine. However, by far the majority of disputes are settled before litigation commences, the cost of which may be equal to or exceed the value of matters in dispute. Increasingly, one of the methods of Alternative Dispute Resolution is being adopted – either through an Independent Third Surveyor, Arbitration and/or mediation.
Services for Tenants.
Business Tenants are just that – persons or organisations renting Premises from a Third Party from which to carry on their business activities, with only a small proportion of Tenants having detailed knowledge of Lease provisions, the maintenance and repair of building fabric and services, and statutory legislation covering Places of Work etc.
An experienced Chartered Surveyor will be able to provide advice on these and many other matters during the Lease Term. However, the engagement of a Surveyor by the Tenant tends to coincide with the start or end of the Lease.
Before the Lease commences, the Premises may be in poor or indifferent condition and
- the Landlord may be offering a rent-free period, to offset the cost of the works required to bring the Premises to a satisfactory state of repair. We can offer advice on costing and procuring repairs, redcoration and approved alterations.
- your Solicitor may be able to negotiate a reduced standard of repairing covenant (e.g. ‘to yield up the Premises in no worse condition than at Lease commencement’). We can prepare an ingoing Schedule of Condition with photographic records for inclusion in the lease provisions, where this can be agreed between the parties.
Towards, or at, the end of the Lease, it is likely that a Schedule of Dilapidations and Breaches of Covenant will be served by the Landlord (see above). Beagle Surveyors are able to represent your interests, examine the validity of the purported Breaches contained in the Schedule, advise on minimising costs, determine the Landlord’s intentions for the Premises, and if the Lease has ended, analyse and negotiate any claim for costs cited as the loss suffered by the Landlord.
The prudent Tenant, in the knowledge that the end of the Lease term is appproaching, may seek to minimise the overall cost of repairs by undertaking repairs, redecorations and/or reinstatement of alterations whilst still in occupation. Here again, Beagle Surveyors can provide professional advice, seek early discussion with the Landlord or his Surveyor to determine the proposed future use of the Premises and the Landlord’s VAT position, any of which may influence the Tenant’s best course of action.