Commercial Leases – Main Obligations

As the landlord or tenant of a commercial property, you will have many responsibilities to ensure that your property is a safe place for people to work. These will mainly be to do with maintenance and repairs, but the specific responsibilities of the landlord will vary depending on the terms of the lease.  In addition, some of the duties can be passed on to the tenants in the terms and conditions, which will make the lease less onerous to the landlord. This article looks at commercial leases as a whole.

It is crucial that everyone involved in commercial leases understand their obligations and makes sure that they are carried out properly.

What does your commercial lease say?

Whether you’re the landlord or the tenant, your starting point should be to read the commercial lease to see what the obligations are and who is responsible.  If you’re not sure, ask your solicitor to check it over for you, and give you a list of all the things you need to know but here are the likely highlights found within commercial leases.

Commercial Leases: Gas safety

Under ‘The Gas Safety (Installation and Use) Regulations 1998’, the person responsible for gas safety must ensure and gas-operated fitting is ‘maintained in a safe condition’. As well as making sure each gas appliance and flue is checked for safety by an official Gas Safe registered engineer within 12 months of being installed and then checked again at regular 12-month intervals. Records must be kept of these annual gas safety inspections for a minimum of two years.

Tenants should check the terms of their lease in order to fully understand if they have any obligations during the life of the lease in regard to gas safety.

If a property is let solely for commercial purposes these regulations do not apply.  However it may still be good practice and even in a commercial lease, it is important to check whether a building has joint use for both residential and commercial purposes, as well as if there are any common parts or shared spaces that have a gas supply or gas appliances.

Failing to comply with the Gas Safety Regulations can lead to large fines, or in some severe cases, even imprisonment.

Commercial Leases: Fire safety

The Regulatory Reform (Fire Safety) Order 2005 (“the Order”) also imposes various duties on the appointed “responsible person”, who is the person responsible for fire safety in respect of premises to which the Order applies.  Depending on the size of the building and how many businesses are run from it, it could cover more than one person. The “responsible person” (or persons!) will be the employer in relation to a workplace and either the person who has control of the premises or the owner of the premises where it is not a workplace, for example, an unmanned storage warehouse.

Duties under the Order include:

• taking ‘general fire precautions’ to ensure the safety of certain people in the event of a fire, such as putting in place measures to minimise the risk of a fire and/or the spread of it, having in place suitable fire escape routes, smoke alarms and providing fire extinguishers;
• carrying out a risk assessment and reviewing this regularly to pick up on any potential fire hazards, changes or improvements which could be made; and
• ensuring that any fire safety equipment and emergency routes and exits are properly maintained and kept in good working order and that the premises are kept in a good state of repair.

A “responsible person” who is found guilty not complying with the Order can be fined and even imprisoned in serious cases if proceedings are brought in the Crown Court.

Commercial Leases: Electrical safety

Landlords are responsible for the electrical safety of the property in some cases.  However, even if you are not responsible, you are generally in charge of conducting regular risk assessments of your property, which may include electrical products as a potential fire hazard. While there is no legal requirement for the landlord to provide a certificate to the tenant, the Electrical Safety Council recommends that testing is carried out every five years or on a change of tenancy.

As a landlord, you have a duty of care to ensure that all reasonable steps and precautions have been made to prevent personal injury to tenants, or damage to their property. Substantial claims for compensation can result from failure to do so.

Commercial Leases: Managing asbestos

There is an obligation on the “duty holder” to manage asbestos under the Control of Asbestos Regulations 2012. This includes a collection of smaller duties, such as regular and sufficient risk assessments are carried out to determine whether asbestos is present on the premises; assessing the risk of anyone being exposed to fibres from the materials you have identified; and taking appropriate action to manage any risks which must be identified in a written plan.

The duty holder will be the owner of the non-domestic premises or the person or organisation with a clear responsibility for the maintenance or repair of non-domestic premises. In reality, the responsibility nearly always falls to the tenant as in most cases the landlord would be reluctant to agree to managing asbestos when they are not in occupation or control of the property.

Any buildings constructed after 2000 should not contain asbestos, as it’s use was banned in 1999.  However, landlords should presume that asbestos is present in any property built before this time unless they have an expert’s report that says otherwise. Just because asbestos is found within a property, this does not mean that it necessarily needs to be removed, as there may be little risk of anyone being exposed. However, any work that you carry out to part of the building containing asbestos would need to be done by a licenced contractor as the asbestos may be disturbed, a list of licenced contractors can be found on the Health and Safety Executive’s website.

Fixtures and fittings

Any fixtures and fittings that have been installed by the landlord need to be securely and safely constructed and maintained by the landlord. Commercial leases should set out the landlord’s contact details so that if the tenant discovers any issues notice of these issues can be served.

Maintenance Within a Commercial Lease

The responsibilities of both parties should be clearly set out in commercial leases. Usually, the tenant will have to keep the premises in good or substantial repair and condition. It may surprise some tenants that ‘keeping in good repair’ will mean that if the premises were not in good condition at the start of the lease, they will have to put them into good repair unless the lease says you have permission to leave it in the condition that it is in. Leases of this type are commonly known as a full repairing lease (FRI’s).  If you have an FRI, a tenant may be advised to have a survey carried out to assess the condition of the property before entering into a lease. This way they could negotiate for the landlord to carry out repairs before the term begins, or to reduce the premium or rent for the first payment to allow for the costs to the tenant of these repairs. In negotiations, you could also try to limit the repairing obligation to a photographic schedule of condition which is attached to the lease.

If the tenant is only leasing part of a larger building, such as an office space, the landlord may retain the responsibility for maintaining the building itself.  The tenant may still have to contribute to the cost, through the service charges.  If you are considering leasing a property, you could ask for the last three years of accounts and information about any planned works so you can budget accordingly.

If you are a landlord, the tenant may ask you if they can carry out work to the property once they are in occupation. If you agree to this, it is recommended that you require the tenant to provide plans and specifications so that you can grant them a license to carry out those specific works, and nothing else which may be less desirable to you. You can also require that the tenant removes any alterations before handing back the property at the end of the lease, which may be a good idea if you think it may reduce the value of your property.

The lease should also be clear on whether alterations will be considered when the rent is reviewed.

Health and safety

The tenant must carry out a health and safety risk assessment in the workplace and take action to remove any hazards when renting a property for its business. They will also be responsible for providing a reasonable temperature, enough space, ventilation, lighting, toilets and washing facilities, drinking water and safe equipment. The tenant could be prosecuted under the Health and Safety at Work etc. Act 1974 if they fail to comply with health and safety laws.

The landlord will be held responsible for health and safety in communal areas which are defined in the lease. However, as a tenant, you must take reasonable steps to make your landlord comply with these responsibilities to ensure the safety of your staff and customers.

A voluntary practice code for landlords, The Code for Leasing Business Premises, states that exactly who should be obliged to maintain the premises will depend on the length of the lease and the condition of the premises. However, in any case the responsibilities of both parties should be set out clearly in the lease and both parties should be sure that they fully understand their respective responsibilities.

It is standard practice for the tenant to be obliged to leave the premises in the same condition as when they signed the lease. Any issues that are a health and safety hazard should be flagged with the landlord.

Minimum Energy Efficiency Standards (MEES)

Since 1 April 2018, eligible rented properties have to have a minimum energy performance rating of E on an Energy Performance Certificate (EPC). Implementation of the regulations has been staggered, so that starting on 1 April 2018 it only applied to new leases of eligible residential or commercial property. From 1 April 2020, it will be unlawful to continue to let eligible residential property, and from 1 April 2023 it will be unlawful to continue to let eligible commercial property which does not meet the minimum energy efficiency standards.

Failure to comply with these new regulations can result in a fine of up to £5,000.

Some properties are exempt from this rule, such as buildings that have a temporary use or places of worship. Tenancies with a term of 99 years or more, 6 months or less, or properties that are generally exempt from the EPC requirements, fall outside of the scope of the regulations. General exemptions can be applied for if certain criteria are met. There is some debate as to whether the regulations apply to Listed Buildings. Landlords currently have some leeway in terms of properties that cannot be improved to an E rating as the work required would fundamentally change the character or appearance of the property, in these cases, they may be granted an exemption.

Commercial property insurance

In most cases, the landlord will arrange and pay for buildings insurance to provide financial security if the property is damaged. The insurance should represent good value for money, and the landlord should provide details of the full policy if the tenant requests this.

There are many types of insurance policies available, so it is a good idea to speak to a financial expert or solicitor who can make sure that the policy is sufficient.

If you are a landlord or tenant entering into commercial leases, always get expert help to make sure you fully understand and can meet your responsibilities under any commercial leases.

Disclaimer – our articles are designed to give you guidance and information.  There is no substitute for proper direct advice, particularly as everyone’s circumstances are different.  If anything in this article may affect you, please contact us for advice that is specific to your circumstances.