Landlord And Tenant Responsibilities For Commercial Premises

Whether you are a landlord or tenant of a commercial property, you will have a duty to ensure the business premises are well-maintained and safe.

The law and the terms of the lease determine whether the landlord or tenant are responsible for particular aspects of the property.

A landlord’s obligations and responsibilities may be laid down in legislation or form part of the lease agreement. In the latter case, it is essential that both landlords and tenants understand their respective responsibilities, notwithstanding of the fact that landlord’s and tenant’s responsibilities can overlap.

Maintenance and repairs

The lease will specify what a tenant’s liabilities may be in relation to maintenance and repairs. Tenants are usually responsible for any maintenance and repairs not specifically identified as the landlord’s responsibility in the lease. The lease may specify that the tenant must keep the property in good condition, even if the property wasn’t maintained to the same standard at the start of the lease, often referred to as a ‘full and repairing lease’.

Health and safety

Gas safety

The lease will specify whether the landlord or the tenant has responsibility for gas safety. This could be shared, with the tenant looking after gas installations within their part of the building and the landlord dealing with the equipment that does not fall within tenanted areas.

The tenant will normally be responsible for maintaining gas equipment according to the manufacturer’s instructions. This is likely to mean arranging an annual inspection by a registered gas safety engineer. The tenant will also be responsible for maintaining any gas equipment that they have installed themselves.

Electrical safety

A commercial landlord has a legal responsibility to ensure that a property’s electrical system is safe. The Landlord and Tenants Act 1985 states that a property’s electrical installation must be ‘Safe at the beginning of the tenancy’ and ‘Maintained in a safe condition for the entire duration of the tenancy’.

Before letting out a property it is advisable for a commercial landlord to have their property surveyed and an Electrical Condition Report (EICR) written by a registered electrician who will also need to inspect the property at least once every five years.

Tenants are responsible for the safety and maintenance of any electrical appliances that they have bought or installed. Depending upon what is agreed in the lease, they may also be responsible for maintaining all electrical equipment in the property according to manufacturer’s instructions which includes organising regular safety inspections by an electrical safety engineer.

Landlords are also responsible for ensuring that newly let commercial properties have an Energy Performance Certificate (EPC) rating of E or above. From April 2023 it will be illegal to renew a lease on a property that does not meet the minimum standard.

Fire safety

The person deemed to be in control of the property will be responsible for fire safety, in accordance with the Regulatory Reform (Fire Safety) Order 2005. Where the property is not a place of work, the person in control is generally presumed to be the owner. If the property is a workplace, then the employer is usually considered to be the person in control.

The person deemed to be in control of the property should consider compiling a risk assessment for the property, provide adequate fire safety equipment such as fire extinguishers and an evacuation procedure in place will also be essential.

A landlord may be responsible for providing equipment such as fire blankets and fire extinguishers, depending upon what is specified in the lease.

Asbestos

The presence of asbestos on the property should be noted in a property risk assessment as required by the Control of Asbestos Regulations 2012. The tenant may have responsibility for this under the terms of the lease, but if the lease is not clear on this point, it may be for the landlord to deal with.

There are statutory obligations on the “dutyholder” to:

• determine whether asbestos is present in a building, or is likely to be present
• manage any asbestos that is or is likely to be present. This involves assessing the risk and putting action plans and systems in place for managing the risk.

A landlord will attempt to pass on the obligations to a tenant but where a landlord retains some obligation to maintain or repair (for example, the structure or common areas) or has the power to carry out maintenance work if the tenant defaults, and to forfeit the lease, they will remain a dutyholder. Usually the landlord will oblige the tenant to cover the cost of managing asbestos in the other parts of the building, together with other tenants, through a service charge.

Regardless of the tenant covering the cost of managing asbestos, leases often contain a tenant’s covenant to indemnify the landlord, for breach of covenant and for the tenant’s acts or omissions.

Insurance

The most common position is that the landlord would insure the building (including the tenant’s premises) in the landlord’s name to the reinstatement value, together with loss of rent for a specified period (typically three years) and will recover the cost, or an appropriate proportion, from the tenant. The tenant should be obliged to pay these sums on demand. The costs typically include the premium, any excess, VAT, fees and other expenses.

The tenant will be prohibited from doing anything that may invalidate the buildings insurance. The lease would not usually prevent a tenant from taking out their own insurance for other matters such as contents, public liability and business interruption.

If any damage to the property is covered by the insurance, the landlord will be required to claim under the insurance and apply the insurance monies received in reinstatement of the property. The tenant may have negotiated with the landlord that if the demised premises cannot be reinstated, then the tenant (or perhaps either party) can terminate the lease.

In addition, more recent leases will also cover how damage is to be dealt with if caused by an uninsured risk, where insurance is not generally available in the open market or not on reasonable terms (for example, flooding). A tenant would want to resist liability in those circumstances and increasingly, landlords are willing to take some of that risk.

Minimum Energy Efficiency Standards (MEES)

Most properties now need to have an Energy Performance Certificate (EPC), which rates the property’s energy efficiency (covered above). A is the most efficient rating while G is the least. A landlord will have the responsibility for obtaining an EPC.

The Minimum Energy Efficiency Standards or MEES require a rented property to have an EPC rating of no worse than E when a new lease is issued. From 1 April 2023, all commercial properties will need to be rated E or above.

Lease Code 2020

The Lease Code 2020 which supersedes the Lease Code 2007 was introduced to improve the negotiation process on lease terms. The Code, along with the template heads of terms accompanying it, is intended to serve as a means of benchmarking good practice in agreeing the terms of a lease. It aims to promote a fair balance between each party’s commercial interests and ensures each party has a clear understanding of what they are entering into in order to make an informed decision as to whether they proceed on the proposed terms.

While compliance with the Lease Code 2007 was only voluntary, the Royal Institute of Chartered Surveyors (RICS) has raised the status of the Lease Code 2020 to a professional statement. A professional statement sets out requirements for RICS agents, RICS regulated firms and landlords (who are members), for which more details can be found on: https://www.rics.org/uk/upholding-professional-standards/sector-standards/real-estate/code-for-leasing-business-premises-1st-edition/.