Drafting and negotiating commercial leases: repair,
insurance and service charge
Outcomes:
1. Explain the respective views of the landlord and the tenant on repair, insurance and service
charge provisions in a commercial lease.
2. Explain and evaluate the amendments often made by the tenant’s solicitor to the repair and
insurance provisions in a commercial lease.
3. Consider and apply the service charge provisions in a commercial lease.
Repairing obligations in commercial leases
Þ LL wants to take a ‘clear rent’, which can be done by imposing a full repairing and insurance
lease, making the tenant liable for the cost of repairs.
Þ Entire building-Landlord leases the whole building to the tenant under a full repairing lease,
making the tenant responsible for repairs of the entire building
Þ Part of building- where the landlord leases part of the building to a tenant, it is usual for the
tenant to be obliged to repair all interior and non-structural elements of their premises and the
landlord will take responsibility for the exterior, common places and structural repairs. The
Landlord will then recover those costs by charging a service charge to all tenants
Disrepair the tenant will only incur liability if the landlord can show that the premises have
‘deteriorated from some previous physical condition’ (Post Office v Aquarius) and therefore,
the property is in a worse condition than it was at some time earlier.
However, Quick v Taff-Ely states that there needs to be damage to the subject matter of the
covenant. Therefore, the obligation for repair and liability rests upon whether the subject
matter of the covenant is in disrepair. In this case, the landlord covenanted to keep in repair
the structure and exterior of a dwelling house that eventually became unfit for human
habitation due to condensation. However, because the disrepair was caused by something
interior and the damage was caused only to the interior of the property, the landlord was not
obliged to repair the property, that was for the tenant to do.
To keep in repair = put in - if the premises are in disrepair at the date of the lease and there is a covenant in the lease
repair if in a state of to keep in repair, the tenant is firstly liable to put the property into repair and then keep it in
disrepair repair (Payne v Haine)
• Where there is a covenant to keep the property in repair where the property at the
date of the lease is currently in disrepair- the tenant is likely to see this as onerous
and will likely want to negotiate on this. Whether that be to remove the clause or to
negotiate the price of the lease payments to reflect the initial and subsequent
expenditure they may incur.
Inherent defects A tenant may be liable for inherent defects in the construction or design under a covenant to
repair. Liability for damage may not only require remediation works but also works to ensure
the defect is completely eradicated (Ravenseft Properties Ltd v Davstone).
However- if the inherent defect has not caused any damage to the property, the property
will not be in disrepair, and the tenant is not under a repairing obligation (Post Office v
Aquarius).
, • Where there are inherent defects that have subsequently caused damage to the
building, the tenant may become liable under their repairing covenant and thus may
also be subject to change or negotiation.
Scope of repairing obligations: factors to consider
Whether the works go to • Repair is restoration by replacement or renewal of subsidiary parts of the whole.
the whole or substantially • Renewal- separate from restoration is where there has been reconstruction of the
the whole of the building entirety or substantially the whole of the building (which goes beyond the repair
and structure or whether covenant)
they go to a subsidiary • Lurcott v Wakey- it was about the repair of a defective part as opposed to replacing
part? the whole. Therefore, will turn on the circumstances
Whether the effect of the • Lister v Lane- it was considered to be an overriding factor that the tenant cannot be
works is to produce a obliged to give back something that is substantially different in character to which
building of a wholly was initially granted to them under the lease.
different character from • Obliged to repair but not to rebuild something new. This again links to the element of
that which was let whether the repairs cover a subsidiary element or replacing the whole.
What is the cost of the The cost will be taken into consideration
works in relation to the
previous value of the Standard of repair: generally determined to be such as ‘having regard to the age, character
building, and what is their and locality that would make the premises reasonably fit for occupation of a reasonably
effect on the value and minded tenant of the class likely to take it’ (Proudfoot v Hart).
lifespan of the building?
The standard would neither be higher nor lower than that expected at the date of granting the
lease, even if the locality now attracted a higher or lower class. The premises does not need
to be kept in perfect repair, just that a reasonably minded tenant would find it fit for
occupation.
Credit Suisse v Beggas- highlighted that although there has been debate surrounding the
syntax of repairing obligations, it is now up to the court to give proper meaning to all words in
the clause and therefore clauses that repair good repair may go beyond what is normally
associated with repair and therefore place higher obligations than anticipated in relation to the
standard of repair.
Tenant’s concerns and amendments
2020 Code for Leasing Business Premises- gives guidance to tenant’s
• See page 237 for detailed analysis
• Where the property is already in disrepair- the tenant will want to limit their liability to put the premises into repair.
This can be done by reference to a schedule of condition with photographic evidence, prepared by a surveyor and
annexed to the lease and agreed by the parties.
• Tenant should always insist that is repairing covenant will not render it liable to repair damage caused by an insured
risk or damage caused by a risk that the landlord should have insured. However, the tenant is likely to be expected
to accept from the landlord that they will remain liable for any damage caused where the insurance has been
avoided due to an act or omission caused by the fault of the tenant.
Enforcement of the covenant by the landlord
• Usual for a tenant’s repairing covenant to include a provision to permit the landlord to enter the premises upon
reasonable notice to ascertain the state and condition of the property.
• It is also usual for there to be a clause for the landlord to serve a notice of disrepair on the tenant if it is found to be
in breach of its repairing obligations
• A right for the landlord, if the tenant has not commenced the works within a specified time, to enter the premises to
carry out the repairs at the tenant’s expense
insurance and service charge
Outcomes:
1. Explain the respective views of the landlord and the tenant on repair, insurance and service
charge provisions in a commercial lease.
2. Explain and evaluate the amendments often made by the tenant’s solicitor to the repair and
insurance provisions in a commercial lease.
3. Consider and apply the service charge provisions in a commercial lease.
Repairing obligations in commercial leases
Þ LL wants to take a ‘clear rent’, which can be done by imposing a full repairing and insurance
lease, making the tenant liable for the cost of repairs.
Þ Entire building-Landlord leases the whole building to the tenant under a full repairing lease,
making the tenant responsible for repairs of the entire building
Þ Part of building- where the landlord leases part of the building to a tenant, it is usual for the
tenant to be obliged to repair all interior and non-structural elements of their premises and the
landlord will take responsibility for the exterior, common places and structural repairs. The
Landlord will then recover those costs by charging a service charge to all tenants
Disrepair the tenant will only incur liability if the landlord can show that the premises have
‘deteriorated from some previous physical condition’ (Post Office v Aquarius) and therefore,
the property is in a worse condition than it was at some time earlier.
However, Quick v Taff-Ely states that there needs to be damage to the subject matter of the
covenant. Therefore, the obligation for repair and liability rests upon whether the subject
matter of the covenant is in disrepair. In this case, the landlord covenanted to keep in repair
the structure and exterior of a dwelling house that eventually became unfit for human
habitation due to condensation. However, because the disrepair was caused by something
interior and the damage was caused only to the interior of the property, the landlord was not
obliged to repair the property, that was for the tenant to do.
To keep in repair = put in - if the premises are in disrepair at the date of the lease and there is a covenant in the lease
repair if in a state of to keep in repair, the tenant is firstly liable to put the property into repair and then keep it in
disrepair repair (Payne v Haine)
• Where there is a covenant to keep the property in repair where the property at the
date of the lease is currently in disrepair- the tenant is likely to see this as onerous
and will likely want to negotiate on this. Whether that be to remove the clause or to
negotiate the price of the lease payments to reflect the initial and subsequent
expenditure they may incur.
Inherent defects A tenant may be liable for inherent defects in the construction or design under a covenant to
repair. Liability for damage may not only require remediation works but also works to ensure
the defect is completely eradicated (Ravenseft Properties Ltd v Davstone).
However- if the inherent defect has not caused any damage to the property, the property
will not be in disrepair, and the tenant is not under a repairing obligation (Post Office v
Aquarius).
, • Where there are inherent defects that have subsequently caused damage to the
building, the tenant may become liable under their repairing covenant and thus may
also be subject to change or negotiation.
Scope of repairing obligations: factors to consider
Whether the works go to • Repair is restoration by replacement or renewal of subsidiary parts of the whole.
the whole or substantially • Renewal- separate from restoration is where there has been reconstruction of the
the whole of the building entirety or substantially the whole of the building (which goes beyond the repair
and structure or whether covenant)
they go to a subsidiary • Lurcott v Wakey- it was about the repair of a defective part as opposed to replacing
part? the whole. Therefore, will turn on the circumstances
Whether the effect of the • Lister v Lane- it was considered to be an overriding factor that the tenant cannot be
works is to produce a obliged to give back something that is substantially different in character to which
building of a wholly was initially granted to them under the lease.
different character from • Obliged to repair but not to rebuild something new. This again links to the element of
that which was let whether the repairs cover a subsidiary element or replacing the whole.
What is the cost of the The cost will be taken into consideration
works in relation to the
previous value of the Standard of repair: generally determined to be such as ‘having regard to the age, character
building, and what is their and locality that would make the premises reasonably fit for occupation of a reasonably
effect on the value and minded tenant of the class likely to take it’ (Proudfoot v Hart).
lifespan of the building?
The standard would neither be higher nor lower than that expected at the date of granting the
lease, even if the locality now attracted a higher or lower class. The premises does not need
to be kept in perfect repair, just that a reasonably minded tenant would find it fit for
occupation.
Credit Suisse v Beggas- highlighted that although there has been debate surrounding the
syntax of repairing obligations, it is now up to the court to give proper meaning to all words in
the clause and therefore clauses that repair good repair may go beyond what is normally
associated with repair and therefore place higher obligations than anticipated in relation to the
standard of repair.
Tenant’s concerns and amendments
2020 Code for Leasing Business Premises- gives guidance to tenant’s
• See page 237 for detailed analysis
• Where the property is already in disrepair- the tenant will want to limit their liability to put the premises into repair.
This can be done by reference to a schedule of condition with photographic evidence, prepared by a surveyor and
annexed to the lease and agreed by the parties.
• Tenant should always insist that is repairing covenant will not render it liable to repair damage caused by an insured
risk or damage caused by a risk that the landlord should have insured. However, the tenant is likely to be expected
to accept from the landlord that they will remain liable for any damage caused where the insurance has been
avoided due to an act or omission caused by the fault of the tenant.
Enforcement of the covenant by the landlord
• Usual for a tenant’s repairing covenant to include a provision to permit the landlord to enter the premises upon
reasonable notice to ascertain the state and condition of the property.
• It is also usual for there to be a clause for the landlord to serve a notice of disrepair on the tenant if it is found to be
in breach of its repairing obligations
• A right for the landlord, if the tenant has not commenced the works within a specified time, to enter the premises to
carry out the repairs at the tenant’s expense
