GUIDANCE NOTE ON LANDLORD & TENANT

Commercial Property with Peter Green

Most tenancies of commercial property are governed by the Landlord and Tenant Act 1954, usually giving a tenant of business premises a right to renew its lease at an updated rent when the original term expires.
However, there are exceptions, for example where the Landlord intends to demolish or to occupy the premises itself, and where the lease was “contracted out” before it began.

Ideally, a lease should strike a fair balance between the interests of landlord and tenant.  If it is biased against the tenant, this could rebound on the landlord when a new rent is fixed at rent review or on renewal.  If there are overriding reasons for unusually tight restrictions on use or assignment, then consideration ought to be given to contracting out of the 1954 Act to avoid this.

Under leases granted after 1995 a tenant’s liability for future rents, repairs and other obligations ceases when the lease is properly assigned.  However, an exception is where the original lease provides that the landlord can require the outgoing tenant to guarantee the obligations of its immediate successor (this can also come about if it is reasonable for the landlord to require it). 

LANDLORDS MUST ACT FAIRLY AND IN REASONABLE TIME
A recent case involving the recovery of service charges has seen the court criticise the way that landlords and their agents often deal with service charges.

The case involved a property in Piccadilly, London, which is tenanted.  The basement level tenant is a casino (Distinctive Clubs Ltd) and it entered into its lease in 1998.  The building was known to have structural problems with its roof, which needed substantial repair, and the lease signed by Distinctive Clubs contained a clause which limited its liability for repair works during the first five years of its lease. The estimated cost of repair in 2002 was £200,000.  In 2004 (after the limitation clause expired) the landlord carried out roof repairs, which included building a new structure which benefited only the tenant occupying the top floor.  The total bill amounted to over £2m and Distinctive clubs’ contribution to the repairs was assessed at £700,000.  In court there were two main questions to address.

Firstly, was the basement tenant liable to pay for the works that benefitted only the top floor tenant and which, in any event, were improvements to the property rather than repairs?

In the view of the court, the repairs to the roof were justifiable repairs under the lease.  However, the improvements which benefitted only the rooftop tenant were not, so Distinctive Clubs would not be liable to contribute to those.  However, in the view of the court, the landlord could, had it shown reasonable alacrity, have completed the repairs by 2003.  Accordingly, Distinctive Clubs was not liable to contribute to any of the cost of the repairs.

The judge criticised the landlord and its agents for including in the landlord’s claim sums which were not properly due and for not informing the tenants of the spiralling cost of the roof repairs.  He also criticised the agents for their lack of independence, characterising their approach as seemingly being intent only on recovering as much as possible of the costs from the tenants.

The lesson for the landlords and their agents is that attempts to collect ‘full recovery service charges’ in a way which does not properly balance the interests of tenants and landlords is likely to get short shrift in the courts.

If you have problems with an aspect of a lease, contact us for advice.

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