Extraordinary repairs in a commercial lease
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Kenneth Campbell is a Senior Associate and experienced commercial litigator at Harper Macleod. Here, the Inverness-based specialist looks at the often contentious issue of who foots the bills for repairs to a leased property.
It’s a question that regularly crops up for lawyers who practice in the area of landlord and tenant: “Who is liable for repairs?”
The default position is that landlords are responsible to maintain premises (i.e. keep them wind and watertight) they lease. The evolution of commercial leases in Scotland has been focussed on displacing that default position so as to place the repairing obligations on the tenants. Those leases are known as ‘full repairing and insuring’ leases (an FRI lease). A standard FRI lease will place the obligations for maintenance and repair onto the tenant. The precise wording will depend on the facts and circumstances as well as the relative bargaining power of the parties. The lease provisions are frequently litigated over; usually at the end of the lease when the landlord wants the tenant to make good on those repairing obligations.
There is, however, a further distinction in Scots Law with regard to who is liable to repair commercial premises, which has also been the subject of many court actions: the long-established distinction between ‘ordinary’ and ‘extraordinary’ repairs.
At common law, the tenant is liable for ‘ordinary’ repairs and the landlord is liable for ‘extraordinary’ repairs. There is no settled legal definition of ‘extraordinary repairs’ but the case law indicates that matters such as latent defects, long-term deterioration, foundation issues and serious damage caused by fire are likely to fall within that category. An inherent quality of ‘extraordinary repairs’ is that as they tend to be more fundamental they tend to be more expensive. That, inevitably, leads the party that may have to pay those costs to challenge them.
A case in point
In a recent case where Tesco were the tenants, the court was asked to determine whether or not the common law position had been modified in terms of the relevant lease over the premises so that what otherwise may be deemed to be ‘extraordinary repairs’ were actually part of the tenant’s obligations.
With these types of case there is no standard or particular form of words required to make a tenant liable to carry out extraordinary repairs so it came down to the precise wording of the lease. The landlords relied on the very wide scope of the repairing obligation in the lease which included ‘the structure and the fabric of the premises both inside and outside’. The only express exceptions to the tenant’s obligation to repair were: ‘... damage by fire and other risks against which the Landlords have insured excepted’. A key argument was advanced that if the landlord was liable for ‘extraordinary’ repairs there would have been a clause allowing the landlord to enter the premises to carry out such repairs but there was no such right.
The Court held that absent a sufficiently clear wording in the lease imposing a liability on the tenant for ‘extraordinary’ repairs, the tenant’s obligations were restricted to ‘ordinary’ repairs. Often commercial leases will try to set out what ‘extraordinary’ repairs might actually be but the lease in question did not. Key words such as ‘structure’ or ‘fabric’ may imply items which require ‘extraordinary’ repairs, although the judge held that it is plainly possible to have ‘ordinary’ repairs required to the structure or fabric.
The judge had regard to the fact that extraordinary repairs may be very significant in terms of extent of work and cost in relation to commercial premises but ultimately it came down to the words used and the landlord’s action was dismissed and they were left to carry out the ‘extraordinary’ repairs.
The relationship between landlord & tenant and their respective obligations is a complex one, and advice should always be sought when you need to understand the implications of commercial lease provisions.
Harper Macleod has a wealth of experience in dealing with these matters.