It is a key consideration in entering in to lease: thinking about the process of leaving the premises and the state of repair of the building on leaving. Our commercial property solicitors are experts in advising on leases and on yielding up.
Some other key provisions:
- “Re-instatement” the tenant’s obligation to remove alterations and improvements at the end of the lease
- “Dilapidations” items of disrepair resulting from breach of the tenant’s obligations during the term of the Lease
- “Schedule of Condition” a schedule which documents the condition of the premises at commencement of the lease
When a Lease of commercial property comes to an end the Landlord can be left with a property in disrepair. If the disrepair is significant the Landlord will lose rental income whilst remedial work is undertaken.
To address this issue it is normal to include an express “yield up” clause in the Lease to make it clear what is expected of a Tenant as regards repairs, decoration and removal of alterations and signage at the end of the term.
An express provision will often give the Landlord the right to claim loss of rental income during any period that it is unable to re-let the property as a result of the Tenant’s breach of these obligations.
It may also give the Landlord the right to dispose of any of the Tenant’s belongings which have been left at the premises.
The Tenant’s obligations
The extent of the Tenant’s repair and decoration obligations will be defined by the Lease.
Unless the repair obligation is expressly limited (e.g. by reference to a photographic schedule agreed prior to occupation) the Tenant could be required to put the property into a better state of repair than it was in at the start of the lease.
The extent of the Tenant’s obligation to remove alterations will also be defined by the Lease and/or any subsequent Licences to Alter or Carry out Works.
If the Lease does not contain an express “re-instatement” clause the Tenant may be entitled to leave all items that have become part of the building including demountable partitioning.
At the other extreme there could be a clause requiring the Tenant to remove all alterations and additions – the cost of which could be significant.
It may however be inappropriate to require removal of all alterations if the works are required to comply with legislation (e.g. Disability Discrimination Act), if it is known that the Landlord intends to redevelop the premises at the end of the term or if the Landlord would be happy to re-let the premises with the alterations in place.
As such the Landlord and Tenant may choose to qualify the re-instatement clause so that all works which are carried out with the Landlords permission will be left in place at the end of the term unless the Landlord gives reasonable grounds for requiring their removal at least 6 months in advance.
If the Landlord considers that the Tenant is in breach of its yield-up obligations it will need to prepare a Schedule of Dilapidations giving details as to how each item constitutes a breach of covenant and quantifying the claimed cost of repair.
If an express yield up clause has been used the Landlord’s claim may also include loss of rent during the repair period.
The Tenant may then serve a counter schedule showing which items of disrepair are accepted and which are disputed. The Tenant may challenge any claim for loss of rent on the basis that the Landlord could mitigate the loss by carrying out the repairs at its own cost and re-letting the premises in the interim
Careful drafting which reflects and balances the needs both parties as regards repairs, decoration and alterations can go along way towards avoiding the expense of such disputes at the end of the term.