We are constantly astonished by the number of companies seeking assistance from a commercial property surveyor during and at the end of occupation of business premises. Assistance with issues arising out of onerous lease clauses and repair liabilities which were not adequately considered prior to entering a contract with the landlord.

Most people in the UK are property owners and will buy and sell their homes several times in a lifetime. Usually, relying on a surveyor to report on condition and a solicitor or conveyancer to approve the sale contract. Many though, do not treat the acquisition of business premises with the same importance.

Acquisition of work premises is usually by way of lease and not purchase. The main driver in the decision process is business profit and providing the property lends itself to this end, the terms of occupation and maintenance of the building fabric becomes a secondary consideration.

A solicitor can be relied upon to check agreed terms of the lease, but the skills and services of a surveyor can often be disregarded. Particularly, if the property is modern and appears to be in good condition. What could possibly go wrong?

Well, quite a lot to the unwary! Liabilities which will cost a tenant tens of thousand pounds over the term of the proposed lease.

There is the obvious loss of potential saving on rent. A chartered surveyor will have knowledge of the commercial property market and be experienced in negotiating best rent and letting incentives.

Other holding costs to hit profit margins include business rates and the cost of utilities. A good surveyor will check the rating assessment on the premises for accuracy and the scope for adjustment and saving. Utilities, for efficiency of heating and lighting installations.

An Energy Performance Certificate gives guidance, but the surveyor will be aware of how the EPC rating sits in relation to forthcoming statute changes, choices between energy sources and, the useful life of installations.

Then there are the lease terms, which are varied and complex. Generally, terms are drafted to cover all the landlord’s overheads and to pass on all repair and maintenance liabilities to the tenant. It is critical therefore, pre-draft ‘Heads of Terms for the Lease’ are agreed early. Before they are sent to the Landlord’s Solicitor.

The first consideration is the length of lease to suit the business plan and prospects for growth. The landlord will push to maximise the lease period, but this may not build in adequate flexibility for the tenant and changing economic circumstances.

The lease should include for the tenant to dispose of their interest, known as assignment, in case the business wishes to leave before the term expiry date. In addition to assignment, the lease may or may not include an ability for the tenant to sub-let the property, or parts of the property. To dispose of liabilities temporarily, or otherwise. Both provisions will be subject to conditions which could be restrictive.  

Rent review mechanics, onerous service charges, reimbursement of the cost of landlord buildings insurance, break clause penalties and, rent deposit terms all come under the microscope of the surveyor for impact on cash flow, if not challenged. However, there is no doubt the greatest risk lies in the lease repair and reinstatement clauses.

Tenants are likely to be responsible for repair and maintenance of the property and to return it to the landlord on lease expiry in good repair and condition. Often, this will mean in better condition than at the commencement of the tenancy and could include replacement of service installations which no longer meet statutory or economic standards!

Beware the words, ‘good condition,’ or ‘to put and keep in good repair and condition.’ Such phrases will open a black hole of reinstatement parameters and costs.

Even if the property appears to be in good order the bill at the end of the lease can be substantial for repairs and service installation maintenance and certification.

An example is an industrial unit, with cladding and detailing which appear well maintained at ground level. Peak above the eaves though, and bleached trim detail, roof sheet cut edge peel and blocked and oxidised gutters are revealed. The dilapidations cost was over £50,000 for just roof and gutters!

A schedule of condition can limit reinstatement repair and decoration to the condition of the property at the commencement of the lease. The condition of a property is recorded in report format, cross referenced to photographs and annexed to the lease repair covenant.

All the same, a schedule of condition is no guarantee of avoiding expensive dilapidation remedial work at the end of the lease term. The prospective tenant and the appointed surveyor should consider ageing and deterioration of the building fabric and installations, not just for the proposed lease term, but for potential extended occupation thereafter.

The schedule is a one chance opportunity to limit reinstatement and if there are items likely to deteriorate beyond ‘condition at the commencement of the term,’ rendering full repair or replacement appropriate, addressing the defect within the ‘Heads of Terms for Lease’ is essential.

Drake Howard Property is qualified and experienced to provide advice and services in all areas of commercial property letting and acquisition referred to. From preliminary inspection to negotiation, survey to schedule of condition and, agreement of terms to checking the lease is appropriate to the property and client.