Lease structure & content - Repair & insurance

Question 1

Who is responsible for repair?

Answer 1

A commercial tenant will almost always be responsible for the repair of their demise (ie the extent of the premises let to them).

Question 2

What does ‘premises’ in a lease of whole of the landlord’s title such as an office block mean?

Answer 2

Premises will refer simply to the title & postal address of the office block
- the tenant is responsible for the interior, exterior & structural repair.

Question 3

What does ‘premises’ in a lease of part - for example, the fifth floor of the office block mean?

Answer 3

Premises will specify the fifth floor of the office block
- but will go into much more detail of the demise, such as including the floor & ceiling coverings, but not the structure/exterior of building
- the tenant is only responsible for interior repair

Question 4

In a lease of whole, is the repairing responsibility solely the tenant’s?

Answer 4

Yes.

Question 5

In a lease of part, is the repairing responsibility solely the tenants?

Answer 5

No, other demises are the responsibility of their respective tenants.

Question 6

Which areas are the responsibility of the landlord?

Answer 6

Areas of the building or estate used commonly by all tenants (common parts), such as hallways, lifts & staircases, communal car parking etc.

Question 7

The landlord bears responsibility for repairing the common parts, who will recover the cost of doing so?

Answer 7

The 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 & how they’re charged

Question 8

FRI lease example…

Answer 8

Three different businesses occupy a lease block under FRI leases.
Business A occupies two floors, business B & C occupy one floor each.
The lift needs replacing at a cost of £20,000.
The landlord will carry out the work and recover £10,000 from A, and £5000 from B and C by way of service charge.

Question 9

What is the repairing obligation set out as in the lease?

Answer 9

It is 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.

Question 10

What might a covenant containing a full repairing obligation (which is required for an FRI lease) say?

Answer 10

‘to keep the premises in good repair’.

Question 11

What is meant by ‘keep’?

Answer 11

This obligation means that if the premises aren’t in good repair, the tenant must put the premises in good repair.

Question 12

What should a tenant taking on a full repairing obligation do so that they’re aware of any major items of repair that may be needed?

Answer 12

They should obtain a survey.

Question 13

What might a covenant containing a qualified repairing obligation say?

Answer 13

’ to keep the premises in good repair but not to put the premises in any better state of repair than it was in at the date of this lease as evidenced by the Schedule of Condition’.

Question 14

Will the schedule of condition contain photographs recording the state of the premises?

Answer 14

Yes.

Question 15

Limits of the repairing obligation

Answer 15

Unless the lease states otherwise, the tenant may generally choose whether to repair or replace an item of disrepair.

Question 16

Limits of the repairing obligation - example..

Answer 16

A tenant has a lease of whole, and the roof is dilapidated.The tenant may choose to replace the roof entirely, but if it is possible to do so, does not have to, and may instead repair it.

If the lease does state that damaged items must be replaced, then the tenant will want this obligation only to apply if the item is beyond economic repair.

Note that if the premises are damaged beyond repair; for example, if subsidence has caused the premises to be so damaged that they need to be rebuilt, this is renewal, not repair and the tenant is not responsible for doing this under a simple repairing obligation

A tenant may be asked to covenant to renew the premises, but this is onerous and should be avoided.

If the lease refers to keeping the premises in good repair and condition, this is more onerous to the tenant (for example, condensation comes within condition, but not repair).

Question 17

If the property is newly constructed, it may have inherent/structural defects that only come to light over time - would the tenant be obliged to repair these issues? Is this fair?

Answer 17

• the tenant would be obliged to repair under its repairing obligation
• this is unfair as the tenant isn’t responsible for them, and the landlord should have warranties from the contractors (builder, structural engineer, architect) that the landlord can rely on.

Question 18

What should a tenant taking a lease of a newly constructed property ensure?

Answer 18

They should ensure that inherent and structural defects are excluded from the tenant’s repairing obligation and service charge contributions.

Question 19

Inherent & Structural defects - example…

Answer 19

A tenant takes a lease of a floor of a newly constructed office block. Due to a structural design fault, the walls along one side of the office develop cracks.
If the tenant has excluded structural & inherent defects from the repairing obligation & service charge, the landlord can’t require the tenant to be responsible either directly for the repair, or indirectly through the service charge.

Question 20

Who’s responsible for the insurance of the building?

Answer 20

The commercial landlord will almost always be responsible for the insurance of the building (even where it’s a lease of a whole).

Question 21

In keeping with the principles of an FRI lease, the cost of insuring will be recovered from the tenant under the lease…

Answer 21

• in a lease of whole, the landlord will insure the whole, and the sole tenant will refund the landlord the whole of the insurance premium
• in a lease of part, the landlord will insure the whole, and each tenant will refund the landlord a proportionate part of the insurance premium.

Question 22

What is the money that the tenants pay to the landlord referred to as?

Answer 22

Insurance rent.

Question 23

What might a typical definition of insured risks in a lease look like?

Answer 23

fire, explosion, lighting, earthquake, tempest, storm, flood, bursting & overflowing of water tanks, apparatus or pipes, damage to underground water, oil or gas pipes or electricity wires or cables, impact by aircraft and aerial devices and articles dropped from them, impact by vehicles, subsidence, ground slip, heave, riot, civil commotion, strikes, labour or political disturbances, malicious damage.

Question 24

Will insured risks be covered by the insurance policy taken out by the landlord?

Answer 24

Yes, the risks mentioned above are the ones that will be covered by the insurance policy taken out by the landlord

• the definition may allow the for the landlord to add other risks to the list from time to time.

Question 25

Are insured risks excluded from the tenant’s repairing obligation?

Answer 25

Yes - they will be excluded from the tenant’s repairing obligation, except in certain circumstances
(eg if the tenant’s negligence means that the insurance isn’t paid out)

Question 26

Will a lease contain provisions to protect the tenant if the premises become unsuable?

Answer 26

Yes.

Question 27

CHECK SUMMARY AT END OF TOPIC

Question 28

What are the two types of repairing obligation?

Answer 28

• full repairing obligation
• qualified repairing obligation