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5 Issues for Tenants to Consider at the End of a Lease

on Thursday, 27 April 2017.

We often get asked "What do I need to do before my lease ends?"

The immediate answer is straight forward - review the terms of your lease carefully. It will likely explain what the tenant is required to do when handing back the premises, commonly including the following requirements:

Remove All Tenant's Items and Fixtures from the Property

It should be easy to identify and remove the tenant's moveable property at lease end. Furniture, stationary, printers and novelty coffee cups all fall within this category.

Identifying tenant's fixtures can be more difficult. An item permanently fixed to a building usually forms part of the premises, to be handed back to the landlord. A tenant's fixture is an exception to this, where certain items affixed by the tenant, having been installed with the intention that it would remain the tenant's property and taken with the tenant upon vacating the property. Consideration needs to be given to making good any damage caused from the removal of those fixtures.

A failure to remove items that should be removed under the terms of the lease will allow the landlord to claim the costs of removing and disposing of those tenant's items after lease end.

Reinstatement of Alterations

Often a lease will contain a prohibition against alterations or a requirement that any licenced alterations made during the tenant's occupation must be reinstated.

Efforts should be made to try to agree the extent of any reinstatement works with the landlord. It may be that if there is a mutual benefit in retaining some valuable alterations, if those are of benefit to the landlord's future use of the premises.

Any alterations which are to be left in situ should be yielded up in the required state of repair. Even if there is no requirement on a tenant to reinstate alterations, a tenant is still required to reinstate any unauthorised alterations. A landlord can claim damages for any reinstatement works which are required, but which the tenant fails to undertake.

Yield Up the Premises in Repair

Tenants are usually required to keep premises in a certain standard of repair and to hand back the premises adopting that same standard. The standard of repair is generally determined by the terms of the lease (although external factors, such as the age, location and character of the premises, also have a bearing on the standard of repair).

A landlord may claim monetary damages against the tenant for any losses arising from the failure to hand back the premises in accordance with the repairing obligations. This is commonly known as a dilapidations claim. Professional fees, contractor's costs and loss of rent may also be claimed.

Often the costs associated with removal of tenant's items and reinstatement of alterations are also included in such a dilapidations claim. Dilapidations claims can become very complex and so become expensive. Various defences are available to a tenant faced with a dilapidations claim, depending upon the circumstances and the provisions of the lease. Expert valuation and technical evidence (including analysis of specialist mechanical and electrical equipment) is often required to pursue or defend a dilapidations claim.

Early advice from a building surveyor, expert in dilapidations claims, together with legal advice, should be sought to assess the merits of any claim (i.e. the works claimed and the costs of those works) and any available defences. This will allow for early negotiation and give the best opportunity to settle a claim without the cost and expense of litigation. There is a protocol which must be followed before a landlord makes a claim. This protocol seeks to achieve an early exchange of information with an objective to promote opportunities for settlement well before court action is required.

Compliance with Statutory Obligations

Tenants must beware a general leasehold provision to 'comply with statutory obligations'. This allows a landlord to pursue its tenant for any failure to comply with legislation concerning its occupation of the premises. It is therefore important to ensure that at lease end, a tenant is able to prove current statutory compliance certificates/paper work for electricity, fire alarms, emergency lighting, asbestos control etc.

If the premises does not reach the relevant statutory requirements, the landlord may try to claim for the costs of works required to reach compliant standards. This can be very expensive and a tenant should ensure that it prepares all relevant documentation to be handed over at lease end.

Timing

The yielding up process should be proactively managed, particularly where a tenant is relocating to an alternative premises. Whilst often a tenant should comply with its leasehold obligations, early advice as to the appropriate works should be obtained. External factors, such as the building becoming ripe for redevelopment, may mean that undertaking extensive repair or reinstatement works is not always appropriate in the circumstances.

Therefore early expert building and valuation advice will allow a tenant to make an informed decision.

If a tenant's lease is coming to an end because of the exercise of a break notice, there are additional considerations. A client will need to fully satisfy any contractual break conditions and specific advice on the terms of any break conditions. This is a technical and strict area of the law and so a tenant operating a break to end its lease should take specific advice on the requirements needed to fulfil any break conditions.


If you require further information please contact Daniel Hall in our Property Litigation team on 0117 314 5315.

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