Most of the responsibilities of the landlord and tenant are allocated within the lease but some things relating to the property may not specifically be addressed. So, who is responsible for what? In this article we consider some of the key responsibilities relating to property for commercial landlords or tenants.
To avoid potentially costly disputes later down the line, it is important for commercial tenants to fully understand their obligations and commitments before entering into a lease agreement. Our friendly team of commercial property solicitors provide clear, pragmatic advice to help landlords and tenants agree fair and practical terms.
Contents:
Maintenance and repair
This should be clear from the lease agreement. Usually the tenant is responsible for all maintenance and repairs of the property which can include internal, external and structural parts. The definition of property should clarify what is considered to be part of the property. If the tenant is leasing an internal area only, such as an office in a building then they must usually repair their internal space and pay a ‘service charge’, being a proportion of the landlord’s costs, for looking after the common areas and external areas.
For some short term leases, such as of serviced offices, a tenant may only need to decorate, with other maintenance and repairs being the landlord’s responsibility.
A tenant may be able to negotiate the lease to limit the liability by reference to a photographic schedule of condition. This would evidence the condition at the start of the lease and the tenant would not be required to return the property in any better condition at the end of the term.
When a tenant vacates the property they may have to pay for certain repairs, or return the property to the state it was in when first rented. The repairs are called ‘dilapidations’. This can include requiring you to reinstate the premises to its original condition if you have made alterations.
Any responsibility that isn’t mentioned in the lease will usually be the tenant’s responsibility. We discuss this subject in more detail in our guide, 'Is a tenant responsible for repairs in a commercial lease?'.
Insurance
The most common position is that the landlord would insure the building (including the tenant's premises) in the landlord's name to the reinstatement value, together with loss of rent for a specified period (typically three years) and will recover the cost, or an appropriate proportion, from the tenant. The tenant should be obliged to pay these sums on demand. The costs typically include the premium, any excess, VAT and fees and other expenses.
The tenant will be prohibited from doing anything that may invalidate the buildings insurance, preventing a tenant from double insuring the property. The lease would not usually prevent a tenant from taking out their own insurance for other matters such as contents, public liability and business interruption.
If any damage to the property is covered by the insurance, the landlord will be required to claim under the insurance and apply the insurance monies received in reinstatement of the property. The tenant may have negotiated with the landlord that if the demised premises cannot be reinstated, then the tenant (or perhaps either party) can terminate the lease.
In addition, more recent leases will also cover how damage is to be dealt with if caused by an uninsured risk, where insurance is not generally available in the open market or not on reasonable terms (for example, flooding). A tenant would want to resist liability in those circumstances and increasingly, landlords are willing to take some of that risk.
Depending on the circumstances a landlord may be happy for the tenant to insure the property.
Statutory compliance
Legislation imposes obligations on property owners, occupiers or both. Some of these statutes will also:
- confirm which party has the primary obligation to comply with a requirement
- give the court the power to apportion the cost of compliance between those having an interest in the property
- state that the court may have regard to the terms of the lease when deciding what would be a just and equitable cost apportionment between the landlord and tenant.
There is usually a clause in the lease which aims to shift responsibility for all statutory compliance to the tenant, where possible. This includes obligations relating to the following:
1. Health and safety risk assessment
The tenant must carry out a health and safety risk assessment in the workplace and take action to remove any hazards. For multi-let buildings, the landlord will normally keep the health and safety file.
2. Fire risk assessment and safety
A fire risk assessment will identify what you need to do to prevent fire and keep people safe. The position appears to be:
- For single-let properties on a full repairing and insuring lease, the responsible person will be the tenant to undertake regular risk assessments
- For multi-let buildings each tenant may be the responsible person for its own unit and the landlord will be responsible for any retained parts, vacant units and communal areas
If the tenant is required to comply with requirements and recommendations of insurers, it should make sure that its liability is dependent on seeing a copy of the insurance policy and written confirmation of any additional requirements and recommendations.
3. Safety of electrical equipment
As the landlord, you may be responsible for the electrical safety of the property. It is recommended that:
- any electrical product, fixture or fitting is safe when tenants move in and that they are regularly maintained
- electrical products are tested every five years by a registered electrician and at the end of every lease.
There is a requirement to inspect and test all types of electrical equipment in all work situations. However, the duty is placed on an employer and not on the landlord or tenant of commercial premises. If the tenant is an employer, the duty to carry out portable appliance testing will rest with the employer.
The lease may require the tenant to be responsible for complying with all laws relating to the use of all machinery and equipment at the property which would place the liability for carrying out these tests on the tenant.
4. Gas safety
The tenant usually must maintain equipment according to the manufacturer’s instructions, which could mean an annual inspection by a registered gas safety engineer to make sure appliances and pipework are safe. Landlords are usually responsible for the safety of all electrical and gas installations in communal areas.
The relevant party must also ensure that they keep records of all safety checks that are made and that any work to any gas fitting is carried out by an approved Gas Safe registered engineer. If the party responsible for gas safety under the terms of the lease fails to adhere to these regulations, they could be faced with a large fine or imprisonment.
5. Asbestos
There are statutory obligations on the "dutyholder" to:
- determine whether asbestos is present in a building, or is likely to be present
- manage any asbestos that is or is likely to be present. This involves assessing the risk and putting action plans and systems in place for managing the risk.
A landlord will attempt to pass on the obligations to a tenant but where a landlord retains some obligation to maintain or repair (for example, the structure or common areas) or has the power to carry out maintenance work if the tenant defaults, and to forfeit the lease, they will remain a dutyholder. The landlord will oblige the tenant to cover the cost of managing asbestos in the other parts of the building, together with other tenants, through a service charge.
Where there is more than one dutyholder, the relative contributions to be made by each in complying with the statutory duties are determined by the "nature and extent of the maintenance and repair obligations" owed by each dutyholder.
The landlord would have to step in to carry out work in the event of the tenant’s default. The landlord will become the primary dutyholder on a forfeiture or surrender, and on the expiry of the term of the lease.
The above list is not exhaustive. Leases often also contain a tenant's covenant to indemnify the landlord, for breach of covenant and for the tenant's acts or omissions.
Energy Performance Certificates
Prior to granting a lease of most commercial properties, the landlord must provide an energy performance certificate (EPC) to the tenant. This provides information regarding the energy rating for a building. Generally, if there have been no changes to a building then an EPC is valid for 10 years
Sometimes a new certificate may be required as a consequence of the tenant undertaking alteration works at the property or because it is disposing of its interest in the lease and the obligation would then fall on the tenant, usually in accordance with strict conditions in the lease.
Since April 1 2018, all eligible rented properties in England and Wales, must have a minimum energy performance rating of E on an EPC before landlords can grant a new tenancy to new or existing tenants. When there has been no change in tenancy agreements, it will be unlawful to continue to lease commercial property without this certificate from 1 April 2023. There are some exemptions.
Landlords may seek pass on the cost of improving the building’s energy efficiency rating under the terms of the lease.
What other responsibilities may a tenant have as an employer?
As an employer, a tenant will have a general duty to ensure that they provide a healthy and safe working environment. This will include ensuring that they provide:
- a reasonable working temperature
- enough space ventilation and lighting
- toilets, washing facilities and drinking water
- safe equipment
- reasonable adjustments to accommodate disabled employees and customers.
Summary
Ultimately, the lease is the starting point for reviewing specific responsibilities of the parties and the extent of those responsibilities. You should be aware of the terms of the lease and the interpretation of the precise wording of the clauses, but also other factors and relevant legislation.
