To keep or not to keep? That is the question!

Most commercial leases contain a clause requiring the tenant to return the property to the landlord in good condition, whether on a full repairing basis or subject to a schedule of condition.  Although tenants should comply with ongoing requirements regarding repair, decoration and alterations to the property, invariably, any failure to do so does not become an issue until the lease ends.

At that time the landlord or his surveyor will inspect the property and serve on the tenant a schedule of dilapidations setting out any items of disrepair that are covered by repairing covenants in the lease. Most relevant would be covenants as to repair, decoration, and compliance with statutes.  Reinstatement requirements relating to alterations differ in that some may require reinstatement, while others may require reinstatement only if the landlord gives notice to that effect.

Some landlords may, therefore, be faced with a difficult decision.  Some alterations, such as air-conditioning, may be a valuable addition to the property whereas others, such as fitting out to individual requirements, may prove disadvantageous to re-letting.  Tenants sometimes wish to retain fittings for use in premises to which they are relocating, or they may regard them as a bargaining tool to offset any claim by the landlord.  If the lease or licence to alter gives a time limit within which notice to reinstate must be given and the landlord fails to comply, the notice will be invalid.  But where no time limit exists, the current position, according to case law, appears to be that the landlord is not required to give notice in good time.  This is open to question as it is generally thought that notices of reinstatement should be served with sufficient time for the tenant to comply.

The 2007 code for leasing business premises in England and Wales suggests that landlords should notify tenants of any reinstatement requirements at least six months before the termination date, but this code is not obligatory.  To be on the safe side we recommend that landlords serve notices at an early stage.

If a break clause contains a pre- condition to carry out reinstatement works or requires the tenant to comply with covenants in the lease, a failure to reinstate can result in continuation of the lease.  It is essential that tenants seek appropriate advice to ensure a successful break. 

Leases protected under the Landlord and Tenant Act 1954 allow tenants to give just one day’s notice before vacating – insufficient time for a landlord to serve notice to reinstate.  Landlords should therefore review requirements before the lease expiry date in case notices need to be served as a protective measure.

Where the tenant has not carried out required reinstatement works and the lease has ended, the landlord will have a claim for the cost of the works, plus a possible claim for loss of rent whilst the works were being done.

Clearly, both parties should seek early advice on alterations and reinstatement provisions so that they can take necessary steps to keep disruption and costs to a minimum.