Commercial Lease Expiry: Contracted out leases and key landlord considerations
In the previous blog in this series, we discussed what it means for landlords and tenants when a lease is “protected” or “contracted out” and focused particularly on key considerations for tenants with a contracted out lease.
In this second blog, consideration will be given to the position for landlords party to a contracted out lease that is due to expire.
As already discussed, there is no requirement for landlords to serve notice on a tenant relating to expiry or non-renewal of a lease, as this is deemed to be automatic. Irrespective of this lack of notice, however, tenants will still have obligations to the landlord under the terms of the lease, and as a landlord, it is crucial to ensure that your tenant has complied with all of their lease obligations on expiry. Please note, there may be costly consequences (i.e. you could miss the opportunity to recover money from your tenant) if you do not take appropriate steps to pursue your tenant for a breach of their lease obligations within the relevant time periods that are either set out in the lease or legislation.
Set out below is a non-exhaustive overview of the common questions that may arise for landlords when their contracted out lease is due to expire. We recommend that landlords obtain legal advice as early as possible before the lease term ends in order to ensure their own lease compliance, particularly where there are time factors in respect of servicing notice/documents on the tenant that need to be considered.
- What state of repair does the tenant need to leave the property in? Is this state of repair subject to a schedule of condition?
- What is the extent of the tenants’ repair obligations? Is the tenant responsible for any structural repairs and/or maintenance and replacement of service media serving the property?
- Is the tenant obliged to replace the carpet/floor coverings?
- Have any licences to alter the property been granted to the tenant, and such works need to be reinstated before the end of the term?
- How long before the end of the term must the tenant redecorate the property?
- How much control do you have over the decoration – can you specify designs and colours?
Schedule of Dilapidations
- How important is it to instruct a surveyor to prepare the schedule rather than doing an informal walk around of the property yourself?
- How long before/after the end of the term must you have served the schedule?
- How long does the tenant have to comply with the requirements of the schedule (i.e. a reasonable period of time or a specified timeframe)?
- Where the tenant does not comply with the schedule, can you carry out the works and invoice the tenant for the costs incurred?
- Are you only permitted to enter the property at specific times?
- Do you need to give reasonable notice to the tenant before exercising this right?
- Are you required to make good any damage while exercising the right?
Removal of fixtures and fittings
- Is the tenant automatically required to remove all fixtures and fittings it installs during the term or are you required to provide notice that the same should be removed?
- If so, how much notice before the lease expires must be given to the tenant?
- If a deposit was taken as collateral for the tenant complying with the lease, what are the criteria that need to be met before you are required to release the deposit back to the tenant?
- Are there any conditions that you need to meet to deduct any amounts from the deposit before releasing it?
- Further information about rent deposits can be found in our series of video blogs
Contact our commercial property lawyers in Sussex and Kent
If you have any queries or need advice on your commercial tenancy coming to an end, please contact David Ashton e. email@example.com t. 01825 745366 or Jonathan Sklar e. firstname.lastname@example.org t. 01825 744493 in Rix & Kay’s dedicated Commercial Property Team