Commercial leases: who is responsible for repairs and decoration?

Full repairing lease:

Full Repairing and Insuring (“FRI”) leases are popular with landlords as it places the responsibility of (putting and) keeping the premises in good condition and ‘in full repair’ onto the tenant – regardless of the condition of the property on handover. The requirement for repair of the premises applies even if the property is in a poor state of repair to begin with and can include structural elements of the property depending on the nature of the property/demised premises.  A tenant taking on a full repairing lease is well-advised to carry out a property survey to be fully aware of the responsibility they would be taking on.

The ‘insuring’ part is somewhat confusing as it does not mean that the tenant must insure the premises; it means that the landlord insures the premises and the tenant then pays the landlord the cost of the insurance premium.

Clearly, FRI leases are favoured by landlords as it could mean that they receive their property back at the end of the lease in a better condition than it was at the start of the lease.  However, tenants would usually resist a full repairing covenant on a lease of 5 years or less (that is not a ‘hard’ benchmark; it depends on the nature and current condition of the property) as it could be unduly onerous.

Limited repairing covenant:

When entering into a new lease, a tenant is usually best advised to protect its interests by recording the condition of the premises at the commencement of the lease and by stating in the repair and decorating covenants in the lease that its obligations are limited by reference to the current condition of the property i.e. that the tenant does not need to put the property into any better state of repair or decorative condition during the lease or at expiry.

Ideally this is evidenced by a professionally prepared photographic Schedule of Condition including all areas of the demise and any fixtures and fittings which the tenant is responsible for.  Or, depending on the type of property, it could simply be photographs and a narrative prepared by one of the parties to the Lease, approved by the other.  The evidence should be printed in colour and annexed to the Lease before it is completed.   The tenant often pays for the preparation of the Schedule of Condition, as it benefits them.

The purpose of the Schedule of Condition is to factually record any areas of existing disrepair and damage, to prove that it was there at the start of the Lease, so that it does not fall within the tenant’s repairing responsibility in a limited repairing lease. The tenant would then need to put up with that disrepair for the lease term (or choose to repair/improve it voluntarily); it does not fall to the landlord to positively repair any disrepair just because it is carved out of the tenant’s responsibility.

If the tenant cannot live with an item of disrepair e.g. because the roof is leaking, then it would need to negotiate that the landlord carries out any necessary repairs, ideally before the start of the lease, so the tenant can ensure it is happy with them.  The tenant would then be expected to keep that aspect in repair, subject to the availability of any warranties/guarantees.  Alternatively, the landlord could covenant to be responsible for a part of the property e.g. the roof, where this is likely to need attention during the lease – but this can lead to disputes and disruption to the tenant’s business whilst works are carried out by a 3rd party, so is not a common ‘solution’.

Even on the smallest of properties, dilapidation claims can run into thousands of pounds. The cost of preparing a photographic Schedule of Condition can be a fraction of the repair bill which the tenant would otherwise be required to pay. It not does absolve the tenant from all potential liability though, as the tenant would be responsible for any further deterioration or damage over and above that shown in the Schedule of Condition.

As these 2 options favour different parties, the repairing covenant can be a highly negotiated point depending on the nature of the property and length of lease.