Entering a lease for your business premises is often a mandatory step for many small business owners, especially those who depend on a property from which to trade, like catering and hospitality-based businesses.
Before we get going it’s important to note that, in addition to the main topic this article title raises, before even entering a lease you should really instruct a surveyor to carry out a report on the condition of the property, and seek the advice of a suitably experienced legal professional, like a solicitor or licenced conveyancer, to manage the transaction properly. It’s also important to give the right instructions to your conveyancer to ensure that the property is fit for your business purposes, as leases tend not to guarantee the property is fit for any particular purpose, and the old adage of ‘buyer beware’ very much applies.
Leases for commercial properties also often impose a full repairing obligation on the tenant, which can mean that you not only have the obligation to leave the premises in the state you found them, but if you found it in a state of disrepair, and this was not properly recorded in the lease, your repairing liability could extend to repair damage that pre-dates your lease!
As a tenant, unless a mortgage is involved, it’s not a legal requirement to instruct a solicitor or conveyancer in the transaction, but it’s certainly ill advised to negotiate and manage the transaction yourself, not only for the reasons mentioned above, but also for those to follow.
Your landlord’s specific obligations, whether these be repairing, maintenance, or otherwise, are likely to be set out under a separate schedule in the lease titled ‘Landlord’s Covenants’. Check these carefully to satisfy yourself that your landlord is definitely responsible for what you think he is.
Of course, if you’re not well versed in legalese, a commercial lease, at often well over 30 pages, can seem about as easy to read as Latin, and worded entirely in your landlord’s favour to the furthest extent the law can possibly allow. The lease also may indicate that your only real remedy to your landlord’s breach is termination, which, on the face of it and in many respects, only further benefits your landlord if you have passionately poured thousands of pounds into refurbishments at the property, only to sign it back over to your landlord if you either can’t realistically take your new fixtures with you without causing substantial damage, or they automatically revert to your landlord once you cease being in lawful possession, which can occur if the landlord exercises his right of re-entry.
Your landlord can exercise this right if you stop paying rent, and it’s also likely that your lease excludes your ability to ‘set off’ rent money against any amounts you believe are owed to you by your landlord, so don’t assume that you can stop paying rent if your landlord is in breach of the lease.
Instead, whilst you may have already notified your landlord of his obligations by email, this may not be the correct form your notice should take, and your landlord may use this against you to ignore the notice. Therefore, you must return to the lease to check how your notice is to be served, which may even require that it not only be served in hard copy, but that delivery is recorded as well. Also, look carefully for the right address to send the notice to. There can be three separate parties on your landlord’s side involved in the transaction – his solicitor/conveyancer (if he used one, which a lease granting a term of 3 or more years will legally require), his agent, and the landlord himself (whether this be an individual or a corporate entity). If in doubt, serve copies of the notice on all parties.
Once you’ve found the correct address, the notice can take the form of a letter, clearly setting out the following:
a) Address of the property, and the specific part to which the lease relates
b) A detailed list of the remedial work required, together with type, scope, clear photographic evidence, and the relevant section of the lease to which the work relates. A quick point to note here, is that if the works are substantial and costly, they may amount to ‘improvements’ under the Landlord and Tenant Act 1927, which the landlord’s covenants are likely to exclude. Equally, if the works are minor and superficial, they may not warrant the imposition of the landlord at all;
c) Any work that you have already had to carry out on your landlord’s behalf in the interests of urgency, and your reasons for doing so, such as the prevention of loss of business, further damage to the property, or personal injury under The Defective Premises Act 1972, section 4, where a duty of care is owed to anybody in the vicinity of the property, from the tenant and their customers, to even trespassers;
d) For more complex works, such as structural, or requiring specialist expertise, you should consider the need for a specialist report in order to appropriately and accurately convey the severity and magnitude of the works. This report can come from a surveyor or engineer, for example;
e) The manner in which the works are to be carried out. Expert reports, as mentioned above, can really help set this out clearly;
f) Anticipated timescale, your reasons for establishing this, and the consequences of deviation (if any);
g) The likely cost of the works, together with any of your loss or damage in addition to that already set out by point b) above;
h) If the area in which the works are to be carried out are demised to you, be sure to expressly grant access to the areas, although this is likely to be automatically granted to the landlord under the lease.
i) A timescale in which to respond to your notice. 14 days after his receipt should be a suitable amount of time. Please see below for the steps you can take if he doesn’t respond.
Additionally, your insurer’s may be able to intervene with your landlord if you notify them as well, but first consider the necessity for this, as it can obviously affect your premium.
It almost goes without saying that you should keep a copy of the notice, and the date it was sent, but using recorded delivery will cover this. Any telephone conversations should be documented as well. Also, you should remind yourself to chase the landlord up once his time period in which to respond has lapsed.
Providing your notice covers the essential items listed above, you should be able to expect a prompt response from the landlord confirming:
i. Receipt of the letter;
ii. Who will be carrying out the works for your landlord;
iii. A request for further information (if needed) including any meetings for assessment/inspection purposes;
iv. Whether or not your landlord accepts responsibility for the work, and his reasons for this;
v. A proposed timescale for completion;
vi. Whether indemnity or compensation will be paid as set off or to you directly.
If the landlord remains unresponsive, or you believe his response does not indicate that he will sufficiently remedy his breach of the lease, then you should consider your options as follows:
ADR (Alternative Dispute Resolution) – the lease may provide details of an arbitration body that you and the landlord must take any dispute under the lease to. Alternatively, it may be necessary to show that you have gone through mediation before moving on to litigation as a last resort.
Damages – this would be the most appropriate resolution if you have already incurred costs in relation to the breach, such as carrying the work out yourself, and any damage to your property, including loss of business, so long as this is not too remote. Again, be careful if you’ve already withheld rent as set off and simply plan to make a counterclaim for damages after you wait for your landlord to make the first move and file a repossession claim, as your lease may also exclude counterclaims, making for a convoluted litigation route. Either way, in addition to specific loss, your financial compensation should include:
1. Disruption to business;
2. General loss of enjoyment of the property;
3. Severity of your landlord’s breach;
4. The duration of your prevention of the use of the property, including the duration of the repairs;
5. Specific nature, extent, and standard of the repairs;
6. How the amount of rent paid may be reflected against the value of the repairs.
Set-off – as mentioned previously, this option may be difficult to pursue if the lease expressly excludes it. In the event that it doesn’t, set off is often the most appropriate route if you’ve had to undertake work similar to that mentioned in point c) above, especially if the repairs are small or awkward for your landlord to carry out. However, even if set-off is available, it may still not be appropriate if works are required to common parts or other areas outside of your demise, even if the work includes your area, or if the work is expensive and particularly complicated. Also, be sure that works you undertake on behalf of your landlord are objectively fit for purpose, and of proportionate cost.
Declaration – if you have decided to undertake the work yourself, and would like to use set-off to recover your costs in doing so, then you can apply to the courts to issue a declaration of your intentions to the landlord.
Specific Performance – this is where a court application is made to force the landlord to comply with his obligations under the lease. However, this type of solution is only really applicable to serious breaches, and those where damages would not be more appropriate.
Mandatory Injunction – an interim injunction can often run in tandem with an application for Specific Performance, but can enforce obligations against your landlord that are not expressly set out under the lease.
If you’re still in any doubt, or need assistance with a dispute, or perhaps negotiations prior to entering a lease, then please feel free to get in touch. Alternatively, you can submit your queries to us by commenting on our Topic of the Week post on LinkedIn.
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