Your Lease in Plain English
The average businessman only looks at his lease twice
In our experience the typical businessman only looks at his lease twice (as they has a lot more interesting things to do). The first time is when they take the lease of the property on and they feel obliged almost to start to read the lease and the second time is when they come to end the lease. In both cases there is the same result, which is a few minutes of concentration trying to understand ye olde worlde English or solicitors speak or both together(!) followed by scan or speed read, followed by the flicking of the pages of the lease until you come to the end of it with the thought, well I'll leave this to the solicitor, which is what most people do, other than check that the rent is correct and start and end dates are correct. However, in this case a little knowledge can make you a lot wiser and certainly allow you to ask the right questions to your solicitor.
Guidance on reading your lease with a reference to dilapidations claims
Here we give guidance to the business owner or surveyor who is looking at the lease on day one and try to consider what their liabilities are property wise or the leaseholder and surveyor who have signed a lease and have been served either an interim dilapidations (one part way through the lease) or terminal dilapidations (coming up to the end of the lease) claim. As with any big task it is worth breaking it up. We always recall the phrase “how do you eat an elephant? The answer (unless you are a vegetarian) is to “chop it up into small bits” and this is exactly what you do with a lease. You are looking to see your property responsibilities or your liabilities with regard to a dilapidations claim. A dilapidations claim is an alleged breach of contract and as such is actionable in law. Contracts within the dilapidations are referred to as covenants. Within the lease you are therefore looking for the following:
What are you leasing?
Often what you are leasing is known as the demise. This is the boundary or the limit of the property that has been leased. It is relatively simple if it is a detached property, more commonly the case it is physically attached to other buildings, so the lease should state exactly where the boundaries start and end, as you certainly don't want to be repairing someone else's property. Again, relatively simple where your property is adjacent on a straight boundary but it get more difficult if the boundary isn't straight or defined or if you are ten stories up in a building.
There are two basic formats that a repair covenant can be written in, or for that matter any covenant. The solicitor can use key words, such as to:
keep in good repair
put and keep in good repair
or the solicitor can use a torrential form of drafting
This was favoured by many solicitors years ago, we assume as a way of ensuring that the lease obligations are met and they would use a long list of covenants, such as:
maintain, etc, etc.
Over the years many of these words have specific case law relating to their exact meaning. In our experience it is only worth going into detail with regard to the case law and the exact meaning of each covenant word if you have a substantial claim against you. Usually the essence of what is required is self-explanatory when reading the lease and, of course, you do need to have the discussion with your appointed solicitor as to what exactly the lease covenants requirements are in their legal eyes.
Decoration and dilapidations
Typically from the leases that we have seen there is a requirement to decorate at particular dates during the lease, some are three year periods, some are five year periods, etc. and also shortly before the end of the lease. It may equally form part of the repair covenant that we mentioned earlier.
In our experience few businesses decorate as frequently as set out within the lease, with the exception of offices and branded high street retail. You should be aware that when are you are taking on a lease you should usually be expected to receive it in a redecorated order, unless of course the landlord has accepted a financial settlement from the previous tenant, in which case we would recommend a schedule of condition to limit your future liability.
Time and time again we come across tenants taking on properties that are in a poor decorative order when we know it is almost certain that the previous lease required the lessee/tenant to redecorate on a regular basis, and particularly at the termination of the lease. This is why it is so essential to have a schedule of condition carried out to protect you against future claims, which really are the responsibility of the previous tenant.
Alterations, reinstatement and dilapidations
If you are at the start of a lease it is a normal requirement to return the property as you found it. We always make the analogy it is similar to hiring a car; if you don't like the car, for example you don't like the colour and decide to repaint it, or you feel it needs a sun roof, you wouldn't really expect the car hire company to accept the car back in that condition, particularly if you had carried out the work without bothering to mention it to them. It is exactly the same with a building, most/all landlords wish to know about any alterations or amendments that have been carried out. The lease normally provides for a documented procedure for this (be very careful of word of mouth agreements) and if you are looking at your lease at the end of the lease period the landlord will usually require it back in the state it was let in originally, unless the terms of the lease allow lawful alterations to remain.
In our experience the leases are normally written so that the landlord can always ask for reinstatement of the original configuration, he may, if he so wishes, not enforce it. If you are about to take on a lease and are considering major alterations, such as adding in a mezzanine floor, please be aware that it is very likely that you will be required to take it out at the end of the lease. We have come across so many instances where the leaseholder considers their alterations to be a vast improvement on the property and the landlord doesn't and therefore requires them reinstating to their original condition.
Statutory obligations and avoiding dilapidations claims
Most modern leases require the lessee to comply with statutory obligations. By these we mean fire regulations, health and safety regulations etc. This can be a very onerous clause, particularly if you are taking on a property that doesn't comply, for example if the previous tenant had altered it it wouldn't mean fire regulations. Another obligation that we often see that hasn't been met by the existing tenant, but the landlord wishes it to be met by the new tenant, is the requirement to have an asbestos survey.
Yielding up a lease
It is very important to yield up the property as set out within the lease, which may require a different or additional set of obligation. If a property isn't yielded up or returned in the required manner as set out within the lease then the lease continues and you are into a claims situation. Therefore try to find the yielding up clause within the lease and understand it.
Measure twice, cut once
This is a phrase that carpenters sometimes use to ensure that they don't end up with a lot of extra work. We feel that an adaption of this for your lease is read it twice (and we mean really read it) and seek specialist advice, understand your obligations and minimise your dilapidations claim.
The above only relates to property related covenants, as this is what we specialise in. We would also add that at a start of a lease we would always recommend a schedule of condition, as it gives you future ammunition for when the lease is terminated and all leases come to an end at some point in time (or the ones that we have dealt with). This is only our opinion.