Lease content and structure Flashcards
Who is responsible for repair?
A commercial tenant will almost always be responsible for the repair of their demise (extent of premise let to them).
Must look at definition of “Premises”, “Demised Premises” and “Property” or similar in the lease.
Lease of whole: premises will refer simply to the title and postal address of the office block. The tenant is responsible for the interior, exterior and structural repair.
Lease of part: “Premises” will specify the fifth floor of an office block but it will also go into much more detail of the demise such as including the floor and ceiling coverings but the structure nor exterior of the building. Tenant is only responsible for interior repair.
Repair - common parts
Areas of the building or estate used commonly by all tenants such as hallways, stairs, lifts etc are the responsibility of the landlord.
Landlord will recover the cost of doing so collectively from the tenants by way of service charge payments. An FRI lease typically contains extensive clauses setting out the services and how they are charged.
What is a repairing covenant?
Set out as a tenant’s covenant in the lease. Without this the tenant’s implied responsibilities as to the repair of the premises would be minimal so the obligation is essential to a commercial landlord.
What is a full repairing obligation?
Required for FRI leases.
Normally says “keep premises in good repair”.
Not only to keep premises in good repair, the tenant must also put the premises in good repair if not.
Tenant should obtain a survey so they are aware of any major items of repair.
What is a qualified repairing obligation?
By definition not an FRI lease and only accepted by institutional lenders in exceptional circumstances.
A covenant containing a qualified repairing obligation might say: “keep in good repair but not to put in any better state than it was at the date of this lease as evidenced by the schedule of Condition”
schedule will contain photographs recording state of premises.
Renewal vs Repair
If damage is beyond repair so that the premises needs to be rebuilt this is renewal not repair and the tenant is not responsible for doing this.
“and condition”
More onerous to the tenant e.g. condensation comes within condition but not repair.
Inherent and structural defects
If property is newly constructed it may have inherent and structural defects that only come to light over time.
This would be unfair to ask tenant to fix - should make sure lease excludes inherent and structural defects from the repairing obligation.
Insurance
A commercial landlord will almost always be responsible for the insurance of the building, but the cost will be recovered from the tenant under the lease.
Lease of whole: landlord insures whole and tenant refunds whole of insurance premium
Lease of part: landlord will insure the whole and each tenant will refund the landlord a proportionate part of the insurance premium.
Usually referred to as “insurance rent”
Insured risks will be excluded from tenant’s repairing obligations.
What if the lease is silent on alterations?
If the lease is silent on alterations then the tenant is free to carry out alterations. The only restriction imposed by law is the doctrine of “waste” which means that the tenant cannot carry out alterations which reduce the value of the premises.
In practice the landlord will want to control these.
Typical restrictions to alterations in an FRI lease
- Type of alterations permitted (external or internal, structural or non-structural)
- If they are permitted, whether the landlord’s consent is needed
- Whether they must be reinstated at the end of the lease term
What is an absolute covenant?
An absolute covenant against alterations means that they are not permitted.
If the tenant wants to make an alteration covered by an absolute covenant they can ask the landlord, but the landlord has no obligation even to consider such a request.
What is a qualified covenant?
A qualified covenant against alterations means that they are only permitted with landlord’s consent. The landlord does not have to give consent.
What is a fully qualified covenant?
A fully qualified covenant is similar to a qualified covenant, but in this case the landlord must act reasonably in deciding to withhold consent.
Alterations
If the lease contains a qualified covenant against alterations (need consent) statute converts it to a fully qualified covenant insofar as the tenant’s proposed alterations are improvements from the point of view of a tenant.
Rare for it not to be an improvement.
