Can you bear to repair?
So, you own a great commercial investment, let on full repairing terms to a blue-chip covenant. Great. Sit back, collect the rent, relax as there's nothing to do? Well sometimes it works like that, but more often than not blue-chip companies fail to adhere to their repairing covenants.
They often wilfully overlook them for two main reasons. The first is that any repairs done equates to money off the bottom line and many choose to 'kick the can down the road'. The second is that many tenants take a strategic view that most landlords:
a) won't want to enforce covenants,
b) don't know how to do so or
c) lack the funds to take the legal route to take the steps needed.
So it's useful to have a commercial managing agent who inspects your properties regularly and knows how to keep an eye on the tenant to ensure that repairing covenants are adhered to.
A positive result:
By way of example, we manage a portfolio of 90 commercial properties nationwide. One is a factory near Manchester let to a multinational. On consecutive inspection, we noted that the cladding was falling into disrepair. Despite our communications, the tenant did not take any action. So with ample warning, we arranged for a repairs notice to be served on the tenant with a request to enter the premises to carry out works in default with the stated intention of re-charging the cost back to the tenant as debt as provided for under the terms of the lease. After ignoring our efforts the tenant eventually started to react when we began to take steps to attend on-site to do the works. At this point the tenant instructed contractors and under our watchful eye put the cladding into repair at the cost of c £200,000.
In this instance, we were pleased to get a positive result for our client and ensure that the value of the portfolio was maintained. There can also be some confusion among tenants about the specific details of the repairing covenant which can lead to them not being adhered to.
As opposed to taking a strategic view or kicking the can further down the road, some tenants may be under the misconception that their obligation only extends to what condition the property was in when they took up the lease. This is incorrect, and tenants should be advised from the outset that this is the case. Unfortunately, often many are not.
In fact, the tenants repairing obligation is based on the wording of the lease. the words "good and substantial repair and condition" mean that the tenant is required to first put and then keep the property in that level of repair and condition. If there was something wrong with the property at the start of the lease, it would be the tenants' responsibility to repair the property. A tenant cannot comply with their obligations under the repairing covenant unless they first ensure the property is to the standard of repair required by the covenant.
Vigilant of violations:
If a tenant does not understand the terms of the covenant, then it is up to us, as commercial managing agents, to ensure they do and to explain the potential repercussions of failing to adhere to them. As in the case above, we must be vigilant to spot potential violations as they rear their head and take action then, rather than waiting for the situation to get worse. Waiting could end up costing clients substantial sums of money.
Technically speaking, there should be no question whether or not tenants can bear to repair, but we are all aware that the reality is that this is often not the case.
It is there essential that managing agents ensure tenants stick to their responsibilities and agents have the confidence to enforce covenants where necessary. This will deliver the best outcomes for clients, making certain that the value of their investment is retained and maintained.
This blog was taken from our most recent Briefing Notes: Issue 92, to see more Residential and Commercial news briefs, click here and it also featured in the most recent version of Estates Gazette and you can find the article here.