The Court of Appeal has held that a tenant’s covenant to pay “all costs and expenses which might be incurred” entitled the landlord in a dilapidations claim to have his costs assessed on an indemnity basis.
So you own the Company, ok. So you own the premises, ok so far. So the Company leases the building from you. It’s all yours anyway, so you create a standard or possibly soft lease between the two. Does it really matter what the terms are, as it is only you who might have to rely on the terms and hold the benefits of the covenants?
STOP. Stop right now!
I have recently been involved in a Dilapidations case where the owner of a Company was forced to sell the freehold of the demised premises to a third party who became the Company’s Landlord.
Lo and behold at the end of the lease a Dilapidations claim in excess of £300000 was received from the Landlord. The original Lease was soft in favour of the Landlord. The Tenant was exposed to the full cost liabilities of repair redecoration and reinstatement ( excepting for those aspects of the sadly all too often usual overstatement and exaggeration by Landlord’s Surveyor). The Tenant had not sought to limit its liabilities properly and no schedule of condition had been prepared. Why should it? “I am both Landlord and Tenant” thought the one and same Company owner and Premises owner.But they are two separate legal persons.
A salutary and expensive lesson.
WOW (Words of Wisdom)
Always be aware one or both of the parties to a Lease could change. If the Company is the Tenant the Lease should always be scrutinized by competent solicitor and surveyor in order to see how its worst hard nosed enemy (s.o.b)might use its provisions and weaknesses to abstract the maximum of damages by way of compensation at Lease end.
A Poor State of Affairs
The Rise of Dilapidation Claims
Matthew Williamson says in Weightmans newsletter :
“Over the past couple of years, the number of dilapidation claims served by landlords against tenants has risen dramatically. Dilapidations are the tenant’s cost of reinstating a property back to the condition required by the lease. Claims have increased because the recession has limited the redevelopment of commercial premises; in a stronger market landlords may just demolish premises that were in a state of disrepair, now they are forced to spend money repairing and redecorating and want to claim that money back from their tenant…………..”
Matthew Williamson is an associate in the commercial property team at law firm WeightmansLLP
Full article can be found by clicking below. All rights reserved.
Tenants often sign up to leases of premises and never have any contact from their landlords except to receive rent and insurance demands or participate in rent reviews.
How many Landlords conduct periodic inspections during the Lease to make sure their Tenants are complying with their obligations to repair and decorate.
Properly drafted leases usually oblige the Tenant to keep the premises in repair and to decorate periodically. So why let the Tenant get in arrears in respect of repairs and decorations.
Redecoration particulary externally is preventative maintenance and stops corrosion or wet rot decay developing to the point where replacements are necessary.
Electrical installations should be periodically inspected , tested and certified.( Usually every 5 years in the case of older installations). Gas installations should be annually inspected and tested and certified. How many Landlords ask to see these during the currency of the lease?
No usually what happens is the condition of the premises is not on the Landlord’s agenda until lease end. Then a Surveyor is sent in and lo and behold the premises have years of backlog maintenance and repairs outstanding. Decorations have been neglected for years .The cumulative costs of these arrears can be eye watering to a Tenant. In times of economic downturn the solvency of the Tenant can be questionable.
Landlords check your leases and more than likely there will be provision for the Landlord to gain access for periodic inspections to review the state of repair and decoration of the premises. If the Tenant is in default of obligations serve an interim repairs and decorations notice requiring the Tenant to take corrective action.
Try to ensure the final inspection is about 12 months before lease end so a Notice can be served and the Tenant has adequate time to sort matters out. The Landlord’s requirements for any reinstatement matters can be spelt out to the Tenant who then cannot rely on defence of insufficient notice.
The need for weighty dilapidations claim ( and ensuing dispute) will be much reduced. The risks of the Tenant going belly up and leaving the Landlord to pick up the tab is limited to a maximum of 12 months neglect
So to recap Landlords protect your position by:
- Periodic check inspections of the premises during the currency of the lease
- Use Repair and Decorations Notices to make sure the Tenant does not store up arrears
- Arrange for last periodic inspection to coincide with last 12 months of the lease term
- Arrange for terminal schedule of dilapidations to be served on the Tenant in last 3 months of the lease term.
This should protect your position.
A bespoke drafted lease at the outset is helpful and I shall discuss this in some future post.
WOW ( words of wisdom):
Never let out so much of the rope you are holding as you are prepared to lose.
Sexual health self-assessment
Ok ladies and gentlemen take this short test to find out whether your sex life is putting your health at risk. How much do you really know about safe sex practices?
What ?I thought this was about surveying !!!
I apologise for the hook but I have your attention and the analogy is true.
Lease and wealth self-assessment for the tenant.
Take this short test to find out whether your lease is putting your wealth at risk. How much do you really know about safe leasing practices?
1.OK you have just lined up a hot sexy date. ( Found some attractive premises to rent)
1. Have you any idea what the risks are and just what nasty STDs you can catch? (Have you any idea what your lease requires you to do in respect of repairs, decorations and reinstatement. )
2. Did anyone explain to you just exactly what you might be exposing yourself to?
3. Ok you are just about to jump into bed ( sign a lease)with a complete stranger the mistress or toyboy( The Landlord).You think this is going to be free of liabilities once the coupling is done( lease term). Are you sure you are not going to catch something nasty and unexpected as a result? A LTD! (Lease Transmitted Disaster)
4.The mistress or toyboy (Landlord) can be very seductive and entice you into that bed with all sorts of charming and alluring behaviour and promises ( rent free period )
5. Bang the deed is done. The lease is signed.( less than 30 seconds)You have had unprotected exposure. ( You have signed to the lease and you are contractually bound by seemingly innocuous clauses in a bewildering legal document). Have you done this?
6.The LTD might not show for years but when it does it was all because you engaged in fumbled hurried unprotected leasing. Don’t you just feel stupid? (Your wealth is going to be seriously affected.)
OK. STOP NOW!! Do not become another victim of ignorance. Practise safe leasing and take precautions.
As an expert dilapidations surveyor I have worked for some of the largest and most successful businesses and commercial property managers in the NorthWest. ( Iotech Group Ltd, Stax plc, James Hall & Co Spar Stores).
I have acted for the same and many similar businesses where they are Tenants of commercial properties. Leading NorthWest Solicitor practices regularly refer their clients to me.
I have provided expert defence to end of long lease claims against Tenants of up to £1.3 million ( subsequently agreed in the case 0f the £1.3m claim at £650000.)
I have undertaken dilapidations surveys on behalf of my clients for the past two decades. I understand exactly where Tenants can be most vulnerable to claims at the end of a lease.
I am by experience both a poacher ( for Tenant) and a game keeper.( for Landlord)
If you have neglected to deal with you repair and decorations liabilities, unfortunately the only defence you have available to you at the end of a lease is to engage an Dilapidations Expert like me and hope that the landlord is not going to be too agressive . ( Hopefully the Landlord has also engaged an inexperienced dilapidations surveyor to act for it if you are lucky)
This is damage limitation only: far better not to have put yourself in that situation in the first place.
OK .What is involved in practising safe leasing?
- Employ the best specialist Commercial Property Lawyer you can afford( I mean seriously experienced and not the sadly all to often generalist solicitor regurgitating or cut and pasting old leases-come on guys who really gives credibility to ‘ye shall whitewash distemper marble and paint’)
- Employ the best specialist Dilapidations Building Surveyor you can afford to carry out a pre-lease inspection of the premises and prepare a comprehensive Ingoing Tenant’s Schedule of Condition.This will be in written photographic ( including elevated birds eye ) and increasingly HD Video format and preferably a combination of all three. ( It is if I carry it out.)
- Ask your Dilapidations Surveyor to give you an executive summary and advice as to just what are the major issues as to current repair and decorative liabilities and liabilities to be addressed at lease end.
- Negotiate with the Landlord for the Landlord to correct existing defects or give rent free period monetary equivalent for you to keep ( and to put) and the premises in good tenantable repair. But do not then forget to sort matters out.
- Or if the Landlord will nor put hand in pocket to repair ( despite possible healthy cash injection from previous sucker tenant) seek to agree to limit your liabilities to repair and surrender the premises at end of lease in no better or worse condition than an agreed attached Ingoing Tenant’s Schedule of Condition. (And it better be very comprehensive! The landlord can seek to attack you with the ferocity of a rabid pitbull.)
- Maintain repair and decorate during the lease term and certainly well before lease end. It far cheaper for you to commission these works. If you have altered the premises or added to the same without landlord’s consent reinstate the premises. Why give yourself a problem and the Landlord a chance to go for that handy cash injection?
- Engage a Dilapidations Surveyor to examine the lease and check over the premises and see where you might be exposed to claims for repairs and decorations and plan backwards from date of the end of the lease and implement a programme of remedial works.
I am an Expert Dilapidations Surveyor with over 25 years experience. If you need help contact me.
I have recently provided safe leasing precautions by preparing a comprehensive schedule of condition of the whole of a multi-hectare site with significant and complex industrial buildings. ( Multiple written schedules, 8 CDRoms of Photos and 2 hours HD DVD Video).
No LTDs for that Tenant!!! ( provided of course they reasonably maintain and decorate to prevent deterioration from recorded condition)
WOW (words of wisdom)
Simple isn’t it?
The prescription: Take sensible precautions and enjoy safe leasing to your heart’s content.
Reviewed an overstated Landlord’s claim today for terminal dilapidations (wants of repair and decoration) at end of commercial lease on industrial premises. My client ,the former tenant, is naturally worried by the staggering amount claimed. ( A third the capital value of the premises)
Moral of tale
1.Take professional advice from experienced Building Surveyor before Lease on the condition of premises and by commissioning and attaching a schedule of condition to the Lease.
Limit liability to yield up the premises in no better or worse condition than evidenced by the Schedule
Too late you didn’t do this?
2. Put your house ( or rather the premises ) in order whilest you are still in occupation. Listen to your Surveyor and act on his advice with regard to reducing your potential exposure to eye watering claim
Too late you didn’t do this?
3. Come and see me and I will see what I can do to reduce the scope and amount of claim ,but be prepared to contribute to your former landlord’s bank balance to greater extent than would have been necessary.
Next time do not be a fool and blind to your potential liabilities.
Obtain the best solicitor’s and surveyor’s advice and guidance you can afford before signing that Lease.
I think in the current case I can help and negotiate the claim down. There are certainly some aspects of the claim not covered by the lease covenants and others are clearly overstated and exaggerated.
WOW( words of wisdom)
As you know prevention is always better than a cure.