Commercial leases: the Case of the Careless Tenant and the Very Expensive Repair Bill

Much like trouble a lease of business premises is easy to get into but hard to get out of. Many landlords will offer rent inducements and rent frees to get tenants in to the property but at the end of a lease will expect tenants to carry out necessary and usually expensive repairs.

It is for this reason that one of the most important clauses in a standard commercial lease is always the repairing clause. The obligation to maintain and repair the subjects of a standard lease will usually be passed on to the tenant, with the tenant being responsible for maintaining the property in the same condition that it is in at the start of lease. This will usually mean a repair bill at the end of the lease but it is important for tenants to ensure that they are not held liable to restore the property beyond the condition that it is in upon taking entry of the property in question. This is where schedules of condition come in. A schedule of condition is basically an annexation to the lease itself, consisting of a series of photographs of the property at the start date of the lease. The idea is to have an easily referenceable means of evidencing the degree to which the tenant must pay for repair to the subjects of the lease, come the date that the lease terminates.

So, the recent case from the Outer House of the Court of Session of Dem-Master Demolition Limited v Healthcare Environmental Services Limited comes as a useful reminder to tenants that, although it means incurring a small cost up front at the start of your lease, it is beneficial to instruct a schedule of condition to be prepared (and properly attached) as it could mean saving thousands of pounds in dilapidation costs at expiry. The case swung on the question of the repairing standard that should be imposed where a schedule of condition had not been annexed to the lease: the landlord of course took the view that this meant that the tenant was on the hook to repair the property to a very high standard. The court however took a different view and held that the absence of a schedule of condition only affected the question of evidencing the state of the property at the start of the lease. The tenant remained liable to repair the property to the standard that it was in at the start and both parties were invited to present evidence to that effect. That, clearly, was a costly affair for the both parties and reminds us of the importance of preparing schedules of condition when the lease agreement is being drawn up. It was also an expensive reminder of the importance of not losing a copy of the schedule of condition.

If you have any questions on commercial leases please contact Michael Dewar or Kieran Reilly in our property team.