Dilapidations documentation

Leases

The overriding objective of a lease is to set out the relationship of the landlord and tenant and to prescribe the basis upon which a property is occupied in order to protect and maintain the value of the landlord’s investment in the property (in addition to allowing the tenant to use it for its business). To do this the lease looks at both the physical and non-physical parts of the occupation in relation to the tenant’s rights and obligations.

The lease should specify the parties to the lease, the date of commencement and length of the lease, and describe the building or part of the building to be the subject of the repairing obligations and characterise this as the demised premises.

The lease will also set out the express terms of the tenancy, specifying the rights and obligations of tenant and landlord. For compliance by the tenant, the lease will generally contain obligations regarding rent, rates, insurance, the standard of repair expected, decorations, alterations, and statutory compliance, and will also usually stipulate the state and condition in which the property is to be returned at the end of the term. The right of quiet enjoyment is the most significant obligation a landlord has towards a tenant, but there will often be other covenants regarding building insurance and, in the case of multi-occupied buildings, an obligation to repair and maintain the building’s common parts (together with details of the service charge mechanism). For further discussion regarding ‘standard’ covenants contained within typical leases see Key dilapidations issues.

Each lease is unique in terms of the parties and property to which it relates. Consequently each lease must be read in its entirety in order to establish the precise terms and conditions relating to the tenancy. Interpretation of leases and their obligations is a legal process and any doubt or uncertainty must be referred to a solicitor before giving advice. In appropriate cases, it may be necessary to ask a court to make a declaration as to the terms of the tenancy.

Licences

A licence is a form of permission granted by a landlord to enable a tenant to exercise a right contained within the lease for which express consent may be required. From a dilapidations perspective the most common licences are those relating to alterations whereby the tenant is entitled to fit out or alter the demised premises to suit its occupational requirements. By granting a licence, a landlord retains an element of control over the nature and extent of the work and the extent to which the works have to be reinstated at the end of the lease. Licences frequently contain conditions under which consent is granted.

Assignments

An assignment takes place when a tenant transfers its interest in the property to a third party. Leases frequently contain rights to assign but also often contain conditions on the frequency and circumstances under which an assignment may take place. When a tenant assigns its interest, the lease continues in accordance with the original terms and conditions, however the new tenant steps into the shoes of the old tenant. Subject to when the lease was entered into and the steps that have been taken in relation to the assignment, the old tenant might at this point be released from further compliance with the lease. Often, however, that is not the case, and the old tenant can, perhaps until the next assignment, remain responsible to the landlord for compliance with the terms of the lease, even though it no longer has possession of the building.