The thing that may fall beneath your radar
You need a property from which to operate and you have found one. It doesn’t appear to be in perfect condition, but it suits you otherwise and you can afford the rent.
One small catch, which you might well overlook: the heads of terms for the lease state that the property will be let to you on a "FRI" basis, and in many cases, even if this term is not used, that is what is on offer. That term means "full repairing and insuring" and if this is agreed it means the tenant will meet virtually all the landlord's costs for the property, paying insurance, the full cost of repairing the property and bringing the property into a state of full repair, and if it is a letting of part, meeting the landlord's repair and other costs for the structure and exterior of the building through a service charge.
What 'keep in repair' really means
When you receive the actual draft lease there is other terminology to be aware of. You might assume that the words used in the heads of terms mean only that you have to deliver what is let to you (interior or whole structure) back in no worse condition than when you found it. The obligation found in many leases that you must "keep" the property in repair might reinforce this impression. However, this type of clause will in fact require you to put the property in a state of full repair, whatever condition you find it in.
How this manifests itself at the end of the lease term
Landlords have limited options to enforce repair covenants during the lease term, and if an over-enthusiastic landlord or their managing agents attempt to do so it is worth taking advice to deal with the problem.
The real problem comes at the end of the term, when you are likely to receive a Schedule of Dilapidations from the landlord listing items that allegedly require attention and claiming thousands of pounds from you to "put the property in repair", even if most of such items of disrepair existed before you took up occupation.
The claims may in many cases be reduced by negotiation and an expert or experienced eye can often identify flaws and limits on items in the claim such as:
- overpricing of remedial work
- work that is not really repair but improvement
- requirement to remove items present at the start of the term
- compliance with statutory obligations not required by the lease
- ignoring limitations on repairing obligations in the lease
- ignoring the statutory limit on compensation to the reduction in value of the property
Mitigating this in advance through the lease wording
Of course it is better to agree a lease on sensible terms in the first place.
If you are taking a lease of a property in less than perfect condition you can negotiate terms that mitigate your obligations so that you are not required to improve your landlord's property at your expense. You can seek to agree a mix of:
- limiting your repair obligation to its condition at the start of the lease
- agreeing a schedule of condition of the property to evidence the above
- excluding disrepair arising as a consequence of the property's current condition
- agreeing a rent-free period to cover the cost of any necessary works
- agreeing that the landlord will carry out works to improve the property
- for a lease of part, requiring an annual cap on the service charge
Have this on your radar from the start
You should look at potential property negotiations with a critical eye, and appreciate that while your starting point will be to acquire suitable accommodation at a reasonable price, landlords will often be seeking to require you to pick up as much of the cost of management of the property as they can.
You can find out more about this and other things to be aware of when taking a lease at our "Taking a Lease – a guide to negotiation for charity tenants" seminar on Wednesday 26 September.
For further information, please contact:
James McCallum on 0208 394 6481, James.McCallum@russell-cooke.co.uk
Clare Garbett on 0208 394 6487, Clare.Garbett@russell-cooke.co.uk