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 has been focused on displacing that default position to place the repairing obligations on the tenants.
Those leases are known as ‘full repairing and insuring’ (FRI) leases. A standard FRI lease will place obligations for maintenance and repair on to the tenant. The precise wording will depend on the circumstances as well as relative bargaining powers of the parties. The lease provisions are frequently litigated over; usually at the end of the lease.
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 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.
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 this type 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 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’.
The Court held that without 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 landlord/tenant relationship can be complex, and advice should always be sought when you need to understand the implications of commercial lease provisions.
Kenneth Campbell is a Senior Associate, Harper Macleod LLP