In Short
- Repair obligations in commercial leases often place significant cost responsibility on tenants.
- Many leases are full repairing and insuring, meaning tenants may pay for both internal and structural repairs.
- Negotiating repair terms early can reduce long-term financial risk.
Tips for Businesses
Before agreeing to a lease, review repair clauses carefully and negotiate them at the Heads of Terms stage. Consider using a schedule of condition to limit your obligations to the property’s existing state and seek exclusions for structural defects or specific risks. Legal advice can help you understand potential costs and avoid unexpected liabilities during or at the end of the lease.
Table of Contents
Commercial leases are vital documents that set out the terms under which you will occupy your business premises as a commercial tenant. A key lease term to carefully review is who is responsible for the property’s repair and upkeep. Repair obligations are one of the most important aspects of a lease, as they determine whether the business or the landlord is responsible for maintenance and repairs during the term (and at its end) and who picks up the costs for the repairs.
In most commercial leases, the tenant is responsible for the cost of repairs and these costs can be significant. As such, it is essential for a commercial tenant to understand and plan for costs when taking a new lease. This article explains how repair payments operate in leases and how to manage risks through effective negotiation and legal support.
This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.
Why Does Understanding Repair Obligations Matter for Tenants?
Repair costs and obligations can directly affect your business’ financial exposure during and at the end of the lease. Depending on your lease terms, you may handle minor internal maintenance or remain liable for full structural repairs. A covenant to “keep in good condition” may require you to put the property into a better condition than when the lease was granted, unless you agree on limitations. These obligations can heavily influence your long-term costs. If a tenant fails to carry out the required repairs, the landlord may be able to complete the works and recover the costs from the tenant or make a financial claim at lease expiry. A clear understanding of repair clauses and your arising payment obligations is essential to protect your business from unexpected liabilities.
What Repairing Obligations are Common in Commercial Leases?
Repairing obligations usually fall under two structures: Full Repairing and Insuring leases or Internal Repairing and Insuring leases. The wording of the lease determines the standard of repair required.
Under an FRI lease, you must repair, maintain, and insure the entire property. You must also cover these costs, including general reimbursement of the landlord for insurance premiums. FRI leases commonly apply where a tenant leases the entire property and are the most common lease type.
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You can seek to negotiate the extent of your repair obligations. The Heads of Terms stage is a key opportunity for you to seek to negotiate how repair obligations are allocated. During this stage, you can present your position on the fundamental terms before you agree to enter into your lease. If you do not address repair obligations during negotiations, the landlord’s solicitor will often include full repairing obligations by default.
You can try to negotiate factors in your favour, for example:
- so your repair obligations are limited to the condition of the premises at the start of the lease. A Schedule of Condition can be formally attached to the lease, recording the property’s state at the time of occupation. This protects you by ensuring you are only obliged to maintain the property in that recorded condition and not required to pay to improve it;
- you can also seek to negotiate exclusions for inherent structural defects and agree on caps on service charges to limit the amount you may have to pay; and
- you can seek to exclude disrepair for certain issues, such as flooding.
Should You Have Your Commercial Lease Reviewed by a Solicitor?
A commercial lease is a legally binding contract that can contain complex and commercially significant obligations. A leasing solicitor can interpret technical wording, identify areas that increase your liability to pay for both repair costs and other costs, and carefully check and amend the lease to ensure it reflects the agreement you reached at Heads of Terms. This important legal review will help provide you with certainty, reduce your exposure to future disputes and seeks to protect your long-term commercial interests.
Key Takeaways
Repair obligations in commercial leases can significantly affect your business’s costs and financial risk during and after the lease term. In most cases, the tenant is responsible for paying for repairs under commercial leases. By negotiating the extent of repair obligations at the Heads of Terms stage, you may be able to reduce your overall costs. Legal advice from a leasing solicitor can help you ensure your repair obligations are clearly understood from the outset, so that you can check they are manageable and do not face unexpected repair liabilities.
If you need help understanding a commercial lease in the UK, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced lawyers help businesses across industries manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
The wording of the lease determines who is responsible. However, in most commercial leases, the tenant is responsible for paying for repairs. Under a Full Repairing and Insuring (FRI) lease, the tenant is responsible for both internal and structural repairs and must reimburse the landlord for insurance costs. As such, the landlord’s obligations are highly limited.
It is a lease where the tenant must pay for all repairs to the property (including structural elements) and must reimburse the landlord for insurance costs. This places the financial responsibility for maintaining the property in good condition entirely on the tenant. If the tenant fails to return the property in the condition required by the lease, the landlord may require the tenant to pay for the cost of remedial works or a financial settlement, costs for their professional advisers and often costs reflecting lost rent, remarketing and reduction in letting value.
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