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Avoiding Commercial Lease Disputes

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Landlords, and tenants, of non-residential properties (e.g. shops, garages, restaurants, warehouses, etc.) can have a tricky enough time in running their respective businesses – without adding to that mix a dispute about the lease. That being said, a landlord’s interest is usually the opposite of the tenant’s. This is particularly clear at the end of a lease, where discussions about repairs can quickly boil over into a full blown dispute. 

A landlord, or a tenant, can take steps to minimise the risk that they face, simply by being a bit proactive with regard to their lease.

Read the Lease

The first thing is to sit down and actually read the lease – it is not a good sign if you are looking at it for the first time after a dispute has arisen!

The lease will set out (hopefully in some detail) the tenant’s obligations regarding the repair of the property.  A landlord will want a tenant to have agreed that the property was in good condition at the date of entry (even if it was not), and be obliged to return it to a good condition at the end of the lease.  A tenant will want to do no more than keep it in the condition it was in at the date of entry, and may have insisted on a photographic record of what that condition was.

Repair Notices During Lease

While the majority of disputes about repair are at the end of the lease, there is usually nothing to prevent a landlord from serving a list of defects (an “interim schedule of dilapidations”, as it is known among lawyers and surveyors) part way through the lease. 

This can be a good tool for a landlord to ensure that the tenant is keeping the property in good condition.  It is particularly important if the tenant is of dubious financial standing, as the landlord can usually exert more influence while the tenant needs to stay in the premises and keep trading, than it can at the end of a lease.

If you are a tenant and receive an interim schedule of dilapidations, you should take this very seriously.  If you do nothing in response to it, or do some repairs but not all, there is a risk that the landlord could terminate your lease and then evict you.

End of Lease

If you are at or near the end of your lease, there is a good chance that a terminal schedule of dilapidations has been served. 

This is where reading the lease becomes crucial again.  If the lease contains certain wording, the landlord is entitled to ask the tenant to pay for the cost of the proposed repair work even where the landlord has no intention of doing the works.  This type of clause can be devastating for a tenant’s bargaining position.  A tenant who is aware of this liability with plenty of time can budget for ongoing repairs during the course of the lease.

If there is no such clause, the landlord usually has to prove that it will do the repair works.  This then triggers something of a game of poker – the landlord will want to get money for repairs and, on occasion, not do them.  The tenant will not want to pay anything for repairs (!), and certainly not for repairs that are not going to be done. 

A tenant will on occasion have to call the landlord’s bluff, and hope that it will accept a low sum to settle the repair costs because the landlord does not really intend to do the works.  Given that repair costs can easily be five or six figure sums, it can pay to be proactive.

 

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