Commercial Landlord Obligations
For investors, the potential medium to long-term returns from commercial property investments remain attractive, but what responsibilities and obligations do commercial landlords have?
Even a challenging economy may present an ideal opportunity for ‘bargain’ acquisitions for both new investors, and those looking to grow existing portfolios.
Despite the draw of commercial rents secured by leases that place most burdens on the business tenant, becoming a landlord of commercial premises must be expected to come with certain legal obligations and responsibilities. Below are five of the most notable landlord obligations usually found in commercial leases.
1. Applications for consent to dealings:
Where the tenant is permitted to assign/transfer the lease or to underlet the property, this will often require the landlord’s prior consent, which must not be ‘unreasonably withheld’ by the landlord. If the tenant applies properly for consent, the landlord must:
- respond to the application within a reasonable time
- give consent, unless it is reasonable to withhold it
- give written notice of its decision and must either specify any conditions to which its consent is subject, or give reasons for refusing consent
Failure to comply with these statutory obligations could entitle the tenant to claim punitive damages against the landlord.
2. Quiet enjoyment:
The covenant for ‘quiet enjoyment’ will typically require that the tenant be allowed to enjoy its use, possession and occupation of the leased premises, without unwarranted interference by the landlord. To avoid a breach, any necessary interference by the landlord must be permitted by the terms of the lease or otherwise by the law.
This can include a range of things from refusing to carry out repairs and interfering with gas/water supplies to entering your property without your permission.
3. ‘Superior’ headlease covenants:
If the landlord is itself a tenant under a superior headlease, the tenant – or undertenant in this case – will require that the landlord:
- pays any rent or other payment due to the superior landlord under the headlease; and
- enforces the superior landlord’s own covenants under the headlease
From the tenant’s position, these would be essential landlord obligations where the superior landlord remains responsible for matters such as the insurance of the building or the proper maintenance of services and amenities on a larger estate. The tenant will often have no direct relationship with the superior landlord, so must rely on the landlord to enforce as necessary against the superior landlord.
4. Insurance & reinstatement following damage or destruction:
The landlord is normally required to insure the building for its full reinstatement cost against damage and destruction by a stated set of perils (with the tenant repaying the insurance premium or of it to the landlord). If the building is damaged by an insured peril, the landlord must act to rebuild the building, including obtaining any necessary planning permissions and other consents.
It is essential that the landlord takes appropriate valuation advice in making the buildings insurance arrangements. If there is a shortfall in the insurance monies needed to reinstate the building following its destruction, the lease may require the landlord to make up the shortfall from its own funds – a potentially significant liability.
5. Repair, maintenance & services
Where the premises form part of a multiple occupancy building with several tenants sharing the building’s amenities, a landlord may be expected to provide certain ‘services’ for building, including:
- the repair, maintenance and cleaning of the building structure
- the maintenance and of shared common parts and amenities, including entrances, lifts and landscaped areas
- the supply of utilities (if not otherwise directly supplied to the separately rated premises)
- the provision of security services.
The extent of the services to be provided by the landlord will depend on the nature of the premises and its surrounding amenities.
Where the cost of providing services is not included in the rent, the lease should be checked to establish that an ‘service charge’ or other appropriate maintenance charge is separately recoverable from the tenants as coverage for the landlord’s costs.
Ellis Jones has a specialist Commercial Property Team who will be able to advise on any legal matters you need guidance on. We can offer our services in both the South and London.
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