The hidden costs of leasing your premises
Michael Bailey, of ASB Law, highlights some of the obligations tenants frequently overlook
If your business leases its premises you could be in for a few nasty shocks. Business owners often make the mistake of not giving due consideration to the actual or potential liabilities they face under the leases they hold. Without a little forethought, you could well be hit in the pocket if you fall foul of some of the following liabilities:
When you vacate leased premises be well aware of the obligation to hand them over in a state of good repair. It’s not rare for owner-managers like you to either believe or forget that the obligation to repair internally and externally lies with the tenant, particularly in the last few months of a lease. T
his could even include replacing cracked rendering and tiles or replacing floor surfaces such as carpet tiles – especially if you acquired the property in that condition. If this work is left to the landlord to remedy, then you will have little control over the cost, which can also include surveyor’s fees for arranging and supervising the work.
Surprisingly, repairing obligations are often more complicated in recentlybuilt premises, where modern methods of construction and materials can involve ‘making good’ liabilities that are not easily detected by the layman. And the potential cost can be extremely high. Try to qualify your repairing obligations from the outset.
You can do this by getting the landlord to agree you do not have to do more than keep the premises as they are and demonstrate what that is, by taking a comprehensive set of photographs. Another good idea where there is a particular problem, is to exclude a particular item altogether from the your responsibilities. Better still try to get the landlord to look after it – after all it’s his building.
Finally, the onset of winter also reminds me that a repairing obligation will usually extend to putting right whatever damage is caused to premises by storms, flooding and the like. Crucially, except for those premises covered by insurance, the bill for repairs ends up with you, and many flooded occupiers have found this out to their cost.
Landlords do not always insure comprehensively – so if the cover is for fire only – any damage caused by water is down to the tenant. Be sure to check the cover, and if there any glaring omissions, demand they be filled. After all, you normally pay a premium so the landlord won’t be out of pocket.
Compliance with statutory requirments
Most leases include tenants’ obligations to observe all statutory requirements. This means you have to do whatever is needed under health and safety legislation, building and fire regulations and all the many rules covering commercial premises, or those to which the public have access.
Again, the task of compliance and carrying out a survey as the regulations require usually falls on you. This means, for instance, that if your property is found to have asbestos in it, you will have to pick up the cost of the work.
Perhaps more worryingly, if you run a pub or restaurant, for example, you may soon be required to provide a secondary means of escape from your buildings. Finally, the Disability Discrimination Act now applies to many premises, meaning you may have to carry out adjustments to make them accessible by those with a disability.
When you come to transfer your lease you must pay rent until the new tenant takes over. While this is an accepted practice, it may mean having to pay rent while a new tenant is found. Then when the transfer does take effect the landlord can usually insist on you guaranteeing the new one. T
his can result in a situation where you remain liable when the new tenant fails to pay the rent or perform the lease’s other obligations. Under the current rules, you can then normally insist on taking a lease back – but this is far from ideal.