Why You Shouldn’t Sign A Commercial Lease Without A Schedule Of Condition
My training master once told me that when reviewing a commercial lease one should always look to see “where is the money, where is the cost to the client”. The “money” or cost to a tenant is not just the obvious costs of rent, insurance and service charge as there may be considerable cost to a tenant in a commercial lease under the ‘Repair’ and ‘Yield Up’ Clauses.
A ‘Repair Clause’ stipulates to what condition or level or repair a tenant must maintain the premises in during the life of the lease. Generally speaking a tenant will be asked ‘to keep the Demised Premises in good order and repair’.
A ‘Yield Up Clause’ stipulates what condition the tenant must hand back the premises in at the termination of a lease. Commonly a tenant will be required to hand back or ‘yield up’ the Demised Premises ‘in good order repair and condition, making good any damage’ etc.
However, with Leases running up to 20 or 25 years currently, where does the tenant stand in 20 years’ time, when the property has suffered dilapidation of 20 years of use? What if the property was not in good condition, when it was handed over to the tenant in the first place? Or what if the property has since been sold and the new Landlord, who has a much higher interpretation of what is ‘good repair and condition’, beyond the condition the premises was originally in?
These issues can very often lead to dispute between landlords and tenants, particularly when these issues usually arise at the end of the lease, where the relationship between the two is ending.
Landlords can serve what is known as a Schedule of Dilapidations on tenant which is, in simple terms, a list of works which it feels the tenant needs to do, at the tenant’s costs, to put the premises into the condition required by the Repair and Yield Up Clauses. Very often the total costs of these works can be very high and represent an unexpected cost to the tenant.
Tenants and their solicitors should ensure that at the commencement of a lease a ‘Condition Survey’ of the premises is carried out. In basic terms, this is set of photographs which show the condition of a landlord’s premises before it is let to a tenant.
A tenant’s solicitor should ensure then, that the Repair and Yield Up clauses are ‘tied to’ the Schedule of Condition, so that a tenant is not required to repair or yield up the premises in a better state and condition as existed at the start of a lease, “as evidenced by the Schedule of Condition” attached thereto.
This will mean that there can be no dispute at the end of a Lease, as to what condition the premises was in at the start and can help to reduce potentially costly claims by a landlord for dilapidations or repairs.
It is important to take care from the outset. Get legal advice on your commercial lease. It may seem like an unwanted expense, but it will be considerably cheaper than a huge, unexpected dilapidations bill when you are moving out.
Do you need help with a dilapidations claim or would you benefit from a legal review of your commercial property lease. Talk to the experts at Patrick F. O’Reilly
Michael Crowley, Partner, Real Estate
Contact: 01-6793565 or email@example.com