Beware of false economies

Judith Birkett 

In such difficult economic times it is understandable that anyone brave enough to take on liability for a commercial property will want to do so as economically as possible. The cost of opening a new shop or factory can seem especially excessive at the moment as there is no guarantee that even a well planned commercial venture will be a success. However, an attempt to cut corners when taking on new premises could easily prove to be an expensive mistake.

So what should a prospective tenant or, indeed, a prospective purchaser be concerned about?

Carry out a survey

It is tempting when taking on a lease with repair and maintenance obligations to look round the premises and to see only their potential. In the midst of this excitement it is too easy to overlook the details of the repairing obligations and to decide against carrying out a proper survey.

A survey can seem like an unnecessary expense but it serves a very important purpose. In taking on a lease a tenant will, almost inevitably, be taking on an obligation to put and keep the premises in good repair and condition. It is therefore vital to establish the property's current state of repair and condition.

If the property is not in a proper state of repair and condition then the survey should identify this and this will allow the tenant to either exclude or limit the repairing obligations in respect of certain items (such as a damaged roof). If necessary, a schedule of condition could be prepared and attached to the lease in order to limit the tenant's obligation to repair to returning the property at the end of the term in no better state of repair than is evidenced by the schedule of condition.

Failure to carry out a survey could prove exceptionally expensive. During or at the end of the term, the landlord can serve a schedule of dilapidations on the tenant setting out the work which the tenant must carry out in order to comply with its repairing obligations. The tenant may find these very difficult to pay for, especially if a commercial venture is not proving to be a success. Surveys are very important in all buildings but especially in older buildings where there are unlikely to be any warranties or guarantees and damage may not be obvious to the naked eye.

Reputable commercial agents will be happy to give quotes for the cost of carrying out a survey and should the survey discover items of disrepair then the surveyor will be able to advise the best course of action so that the transaction can still progress.

Minimise your exposure to risk

Keeping legal costs to a minimum is often a primary concern for any prospective tenant or purchaser. However, it is wise to remember the old adage that "you get what you pay for". It is often beneficial for your solicitor to view a property as if there are complications around issues such as shared obligations, difficulties with access or other concerns, it is much easier for a solicitor to advise you properly if they have seen the property and can understand your concerns or, indeed, identify potential issues which may not have occurred to you.

On a similar note they can advise on the searches and enquiries you should raise. It is wise to listen to this advice and carry out the appropriate searches rather than risk discovering something unpleasant about the property once you are committed to the transaction.

Some landlords will present a lease and invite a tenant to sign this without the benefit of seeking legal advice. It would be unwise to proceed on this basis as it is important to at least have a clear understanding as to the legal obligations to which you will be bound.

For example, there will almost certainly be a covenant to comply with all statutory obligations. This will include complying with all laws and regulations relating to issues such as asbestos, fire and health and safety. Not only would a tenant be in breach of its lease if it failed to comply with those obligations but such failure can have an adverse impact on any insurance policy and any relationship with employees or visitors to the premises.

Whilst incurring professional costs at the beginning of a commercial venture can seem like an unnecessary expense, in the long run it will be money well spent. Failure to take proper advice at the outset could result in unforeseen expenses at a later date which would leave a very bitter taste and make those initial savings seem a very false economy indeed!

For more information, help or advice please contact Judith Birkett, call 0191 211 7947 or alternatively email us at advice@muckle-llp.com
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