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Commercial Leases and Landlords: Burning Questions – Part 2

Are you a prospective Landlord? Are you considering granting a commercial Lease to a tenant but are hesitant about proceeding? Perhaps you are unsure about some of the key elements that you will need to consider when granting a commercial Lease to a tenant? In Part 2 of this article we will identify some burning additional questions that prospective Landlords have in relation to commercial Lease transactions.

  1. What is an Energy Performance Certificate (EPC) and do I need one?

  2. What is a Full Repairing and Insuring Lease?

What is an Energy Performance Certificate (EPC) and do I need one?

An Energy Performance Certificate (EPC) is a report which identifies how energy efficient a property is. It is valid for 10 years. Introduced in October 2008, the EPC rating ranges from an A grade to a G grade, with a G grade being the lowest energy efficiency rating. In April 2018 the Minimum Energy Efficiency Standards (MEES) regulation came into effect and provided that a Landlord cannot rent out a property if the property has an energy efficiency rating of less than an “E”.

It is a legal requirement to have a valid EPC for a property when marketing the property for sales or lettings. It is illegal to rent out a property if it does not have an EPC. The consequences for doing so include a fixed financial penalty in most cases at 12.5% of the rateable value of the building (in effect a fine of between £500 and £5000).

In order to obtain an EPC the prospective Landlord must hire an accredited domestic energy assessor to conduct an Energy Assessment Survey on the property. The domestic energy assessor will inspect the windows, the roofing, the walls and its insulation, the boiler, the plumbing and the electrical installations.

An EPC is one of the essential documents that all solicitors will request when representing a tenant in a lease transaction. A Lease transaction cannot be completed if the property does not have an EPC.

  • Repairing and Insuring clause

It is common for a landlord who is concerned about the upkeep of their property to include a full repairing and insuring clause. A full Repairing and Insuring (FRI) clause is a lease in which the tenant takes on all of the cost for repairs and insurance including internal and external repairs and repairs to the structure of the property. Therefore, the landlord can rest assured that any disrepair in the property is the tenant’s responsibility. In the case of a multi-let building the landlord will be responsible for repairs to the common parts with the tenants paying a proportion of the repair costs as service charge.

  • Enforcing a Repairing and Insuring clause

Enforcing a repairing obligation on the tenant during the tenancy is difficult and legal remedies are limited. The requirement for repair of the premises applies even if the property was in a poor state of repair prior to the grant of the lease to the tenant.

A lease agreement is a contract. If the contract is breached, the landlord can take legal action against the Tenant. Some of the legal remedies available to the Landlord include:

  • Order for specific performance/injunction

The landlord can ask the court to order an injunction/ order for specific performance against the Tenant compelling them to fulfil their repair obligations.

  • Forfeit the lease agreement

A Landlord may also have the option to bring the lease to an end, if a Tenant breaches a repairing covenant. The resulting breach will result in the tenant being evicted from the property.

  • Entering the property to make repairs

Most leases provide for the landlord having the right to enter the leased property without the tenant’s permission, in order to carry out essential repairs to the property. The landlord may then seek the costs they incurred for the repairs from the tenant.

  • At the end of the tenancy

Prior to or at the end of the tenancy the landlord may decide to provide the tenant with a Schedule of dilapidations (SoD).

Dilapidations is defined as, the state or process of falling into decay or being in disrepair” and a Schedule of Dilapidations refers to the list of repairs required by a Landlord during or at the end of a tenancy. The Landlord will generally ask the tenant to pay for those repairs. A Schedule of Dilapidations can be served on the tenant at various stages throughout the tenancy.

An SoD served during the tenancy is known as an “interim schedule” . It will identify the repairs which the Landlord wants the tenant to undertake. An SoD served within the last three years of a tenancy period is known as a “Terminal Schedule” while a schedule served after the tenancy has ended is known as a “Final Schedule”.

Although The Final Schedule also details what repairs are required to the leased property, rather than asking the tenant to make those repairs, the landlord may instead demand that the tenant pay for those repairs and compensate them for any lost revenue whilst the property is off the market due to the repairs being carried out.

How can Pure Business Law help?

We are specialist Commercial Property Solicitors based in Bedford and London operating nationally. As Commercial Property specialists we will act for you in Commercial Property transactions, protect your commercial property rights and resolve any disputes which may arise regarding your property.

If you would like to discuss any issues or disputes concerning your commercial property, or anything raised in this article please contact us and speak with one of our solicitors. Pure Business Law is regulated by the Solicitors Regulation Authority and is a licensed member of the Law Society of England & Wales.

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