It pays to be contractually prepared for accidental damages, especially when the consequences mean losing your business, says Debra Kent
Last week you had to close your restaurant because your roof leaked. Your landlord organised emergency repairs, but you have just received a massive bill for tens of thousands of pounds for the costs. How can this be, when the landlord has only just refurbished the building for you and the other tenants, and put a new roof on the building?
The landlord organised the roof works. As a tenant under a lease in a multi-let building, you have no contractual arrangement with the roofing contractor and cannot sue for bad workmanship. You have a full repairing responsibility for the internal areas of the restaurant under your lease. The landlord is responsible for keeping the structure, including the roof, in good repair and condition. However, the service charge provisions require you to contribute to the costs of structural repairs, including the roof.
How could this have been avoided? Ideally, your lease would require the landlord to carry out the repairs, but you would have excluded responsibility from your repairing obligation and the service charge for any defects in works carried out by the landlord.
If the landlord would not agree to this (and many won't) you might have been able to obtain a collateral warranty, or what is known as third-party rights. This gives you an arrangement with the contractor, allowing you to sue for any breach of the roofing contract.
A less attractive option is that your landlord has an obligation to fix any defects and only to recharge those costs through the service charge if the landlord is unable to recover the costs from the contractor.
Some safeguards to protect you from this sort of problem are:
- Always carry out a detailed survey of the property before agreeing the lease.
- Require the landlord to carry out any repairs or agree a schedule of condition which sets out those items you are not required to fix.
- Include rights to monitor any works carried out by the landlord or any other party so that you might pick up problems earlier.
- Agree that you do not have any liability under the lease for the costs of fixing defects, even by paying a share of the costs through the service charge. However, you will also need an obligation for the landlord to fix these with no rent payable while the property is unusable.
- If that is not possible, obtain a collateral warranty or third-party rights against any contractor and professionals such as architects, engineers and other consultants, so that you might make a claim against them if the landlord is not responsible.
- Alternatively, make it the landlord's responsibility to fix the problem and to get the relevant contractor or consultant to pay the costs, and only share these costs if the landlord is unsuccessful or the contractor or consultant is insolvent.
Many tenants have had to spend large sums of money to carry out urgent repairs, or have received large bills from their landlords and for relatively new or refurbished property. Not only will there be interruption to the business, with a possibility of having to close during the repair period, but there might also be damage to furniture, decorations, plant and equipment and other fixtures and fittings.
The landlord will not necessarily be responsible for the costs of repair or for cleaning, repairing or replacing these items. Your rent continues to be payable during this period and the whole problem can cause significant, if not fatal, damage to your business. As always, some careful planning and well-drafted documents can save you from many problems.
Debra Kent is a retail and leisure property lawyer at Charles Russell Speechlys LLP
You need to be a premium member to view this. Subscribe from just 99p per week.
Already subscribed? Log In