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Leasehold properties
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In the current economic climate, budgets are tight and companies are looking to save money wherever they can – and liabilities arising at the end of a commercial lease can be a problematic area. Understandably tenants are keen to take occupation at the outset and, other than the amount of rent and outgoings, often fail to consider its responsibilities under the lease.
According to Heather Dixon, property partner from leading Midlands law firm Flint Bishop, costly mistakes made by ill-informed tenants, can cause companies to face nasty shocks when vacating the property.
“These unexpected costs come in the form of dilapidations, or charges levied by the landlord for any deterioration of the property. Tenants are often keen to take occupation at the outset but fail to consider the responsibilities that arise during and at the end of the lease”
As in any legally binding contract, it is imperative that you know your rights and responsibilities – and a lease is no exception. A tenant must therefore always clarify their liabilities. Simple things like reading and understanding your lease before filing it away is important!
It is commonplace for a tenant to take on a full repairing lease. This means, for example, a tenant may take the burden of immediate liability for inherent defects as soon as they sign the contract, even if these defects arise from a deficiency at the time of construction. Without proper advice the tenant may also unwittingly take on liability for pre-existing contamination.
For a tenant to avoid this accountability, it is wise to arrange for a detailed survey to identify any fault and thus limit liability for repair. Depending on what is identified by the survey it may be worth asking the landlord to carry out the repairs before committing to the lease. It is worth noting here that the words “keep the property in repair” includes pre-existing problems and not, as is implied and mistakenly often believed, the property as you undertook to rent it.
For example, if a tenant takes on a property with a leaking roof, and the leak does not cause any further “deterioration”, then you do not assume liability for the problem. It is easier to presume that from the start of the lease, if there is a problem that will cause damage or will intensify and cause further damage, you will be accountable for the result of this. It is also the case that allowing further deterioration is likely to be more costly to repair and may affect the continuity of your business.
The problem a lot of occupiers face is that they are so focused on their core business strategies that leasing issues seem trivial in comparison. Businesses are also largely unwilling to part with the cash to pay the maintenance costs associated with the upkeep of a building they do not own. It is however unavoidable. It is always sensible to budget instead of evade. Sticking to an ongoing plan can minimise the cost shock at the end of the lease. A convenient and timely repair will generally be more cost effective and cause less disruption to your business. Smart tenants will react and fix those gaping windows before the harsh weather creates rot. Prudent tenants will even proactively follow a pre-agreed routine of maintenance with the “prevention is better than cure” mentality.
The main advice is to be proactive about your legal position. Drive a hard bargain. Being aware of your potential liability is completely different to negotiating a dilution of it. Ask a surveyor to prepare a schedule of condition to highlight the areas of concern and therefore your liability for any existing problems. Ask for a longer rent-free period to induce you to take over the property or ask the landlord to carry out the repairs identified by the survey or to contribute towards the repairs being done.
It is better to be aware of the liability and manage the risk at the outset than assume it won’t cause a problem later.
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