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Repairing obligations for common parts

12 December 16

Are commercial lease repairing obligations different for common parts than for premises? Experience suggests that the point should receive more attention at the negotiating stage

by Matthew Farrell

There has been a lot of litigation recently concerning dilapidations. The reason for that can be traced back to the start of the economic crisis in 2008, when, quite understandably, the number of tenants available to take new premises fell dramatically. This meant that landlords were left facing the prospect of a lengthy void period, and all the liabilities that come with it, when their tenants’ current leases came to an end.

To try and mitigate that liability, landlords started to pursue dilapidations claims much harder than they had previously. If they could get a significant payment from their outgoing tenant for dilapidations, they could use that money (although legally they shouldn’t) to cover costs associated with the void period.

Tenants, on the other hand, were having an equally hard time of it. They didn’t have the money available to settle the dilapidations claims now being pursued by their landlords, and most had not been in the habit of setting funds aside for dilapidations. They therefore defended dilapidations claims just as vigorously as they were being pursued by their landlords.

That meant that dilapidations claims became fertile ground for litigators, who employed a whole variety of arguments to maximise or reduce a landlord’s dilapidations claim, depending on whether they were acting for a tenant or a landlord.

As a result, there were some spectacular successes for tenants, for example Grove Investments Ltd v Cape Building Products Ltd [2014] CSIH 43, but on the whole, landlords were recovering more money in dilapidations than ever before.

New climate

The market has picked up somewhat since 2008, but landlords are still pursuing dilapidations hard, since they now know how much money they can make from them. There has been what can broadly be described as an attitude change by landlords towards dilapidations.

That has focused lawyers and clients’ minds on the drafting of dilapidations clauses. While dilapidations clauses would have received cursory consideration before 2008, they can now be the subject of considerable debate and revision when a lease is being drafted.

Despite that, the repairing obligations that apply to the common parts are often overlooked. Matters such as extraordinary repairs, the common law obligations implied into the lease, payment obligations and the repairing standard are all usually dealt with in the repairing clause for the lease, but are nowhere to be seen in the repairing clause for the common parts.

Tenants' response

We are now starting to see tenants take advantage of this. They are contesting liability for the costs incurred by landlords in repairing and maintaining the common parts by using the arguments that have been developed over the last eight years or so in dilapidations cases.

The most recent example of this is AWG Business Centres Ltd v Regus Caledonia Ltd [2016] CSOH 99. AWG pursued Regus for the cost of repairs to the car park, which was common property. The dispute focused on whether the words “irrespective of the cause of damage” made the tenant liable for a latent and inherent defect in the car park. Those words make a tenant liable for extraordinary repairs in a dilapidations clause.

The court decided that they did. In reaching its decision, the court had regard to the terms of the repairing clause for the premises. In effect, the court construed the repairing obligation for the common parts by considering the repairing obligation imposed on the tenant for the premises. This was a relatively unusual approach, especially where the provisions relating to the recovery of service expenditure on the repair and maintenance of the common parts were not exactly the same as the provisions for the repair and maintenance of the premises.

That aside, this is a clear example of a tenant using the dilapidations arguments developed over the years to try and reduce its liability for the cost of repairing the common parts. It should therefore be at the front of all lawyers’ minds when negotiating commercial leases that the repairing obligations for the common parts should be consistent with the repairing obligations for the premises.

Matthew Farrell is a partner in the business disputes and asset recovery team at Brodies LLP.
t: 0141 428 4112; e: matthew.farrell@brodies.com
 

 

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