As a commercial lease nears its end, both sides start to think about the condition of the premises. A landlord wants the building back in the state the lease promises. A tenant wants to know what it will really cost to walk away. Most claims are easier to understand once you split them into their three usual parts.
1. Repair
The repairing covenant is normally the largest part of any claim. Its wording matters: a covenant to “keep in repair” already obliges the tenant to put the premises into repair, while words such as “renew” or “replace”, or a reference to a schedule of condition, can widen or narrow the obligation, and a tenant cannot be required to hand back a better building than the lease requires. A schedule of condition attached to the lease at the start can limit the obligation, so always look for one.
2. Reinstatement
Many tenants add partitions, raised floors, signage or extra services during the term. Whether they must remove them depends on the lease and on any licence for alterations. Some licences require reinstatement only if the landlord serves notice before the lease ends, so dates matter. Where no reinstatement obligation exists, the alterations stay.
3. Redecoration
Most leases require redecoration at set intervals and in the last year of the term. The wording often specifies the type of finish and whether the landlord can approve colours. A tenant who redecorated recently may still be caught by a final year clause.
The limits on what can be recovered
Damages for disrepair are capped by section 18 of the Landlord and Tenant Act 1927. A landlord cannot recover more than the reduction in the value of its interest caused by the disrepair, and nothing at all for works that would be overtaken by planned demolition or structural alteration. Reinstatement and redecoration claims are normally argued as a loss to the landlord too, so it is worth asking early what the landlord actually intends to do with the building.
Practical advice
- Landlords: base the schedule on the lease and licences, price it fairly, and be ready to show your loss.
- Tenants: get advice well before the end of the term. Doing the work yourself is often cheaper than paying damages.
- Both: keep photographs, invoices and correspondence. Evidence settles claims.
See our Dilapidations service, and how we approached a proportionate claim for a portfolio landlord.