When setting up a business, the overwhelming majority of entrepreneurs opt to rent, rather than buy a commerical premises. While owning gives a large degree of control, it can be a big step in the early days of running a business and is not always scalable. Therefore, renting is usually the favoured option – at least to begin with.
Commercial property in Scotland, as in other jurisdictions, operates within a framework of contractual obligations that dictate who is responsible for the upkeep and repair of the property. Whether these responsibilities fall on the landlord or tenant depends on the terms of the lease. Understanding these responsibilities is essential if both parties are to avoid potential disputes and financial complications during the lease period.
What are ‘ordinary’ and ‘extraordinary’ repairs?
In commercial leases, repairs can generally be classified as either one of two categories: ordinary repairs or extraordinary repairs. These categories define the nature of the work required to maintain the property – and who bears the associated costs.
Ordinary repairs are minor, day-to-day maintenance tasks required to keep the property in a usable condition. Examples of ordinary repairs include fixing leaking taps, repainting worn walls, repairing flooring, or maintaining electrical fixtures. Essentially, they are repairs arising from normal wear and tear over time due to regular usage of the property.
On the other hand, extraordinary repairs involve major work that is necessary to address significant damage or structural issues with the property. This could include roof replacement, repairing foundational cracks, or replacing a failing heating system. Extraordinary repairs are generally less frequent, however they usually involve substantial costs and disruption.
In a commercial setting, the classification of repairs as ordinary or extraordinary can influence who is liable for the costs. The distinction often depends on the lease agreement, the nature of the repairs, and the cause of the damage.
Who is responsible for ordinary repairs?
In Scotland, liability for ordinary repairs in a commercial property is typically outlined in the lease agreement between the landlord and the tenant. Most leases are full repairing and insuring (FRI) leases, under which tenants assume responsibility for the day-to-day maintenance and minor repairs to the property, in addition to covering the costs of insurance. A FRI lease is a long and complex contract, covering everything from payment of rates, alteration of the building and energy performance, through to limitations on the use of the premises (for example, if the building has been rented for use as a clothes shop, the tenant can’t convert it into a pub!)
Repair is one of the elements in the very name of the lease. Although the property belongs to the landlord, it is the tenant who is liable for keeping the fabric in good order – and even improving it if they got it in a poor stage at the outset. It is therefore the tenant’s responsibility to carry out any ordinary repairs as needed to keep the property fit for its intended commercial purpose. They also need to ensure compliance with health and safety regulations by addressing any minor repairs or hazards.
However, it is important to note that while tenants are responsible for ordinary repairs under most FRI leases, there may be exceptions. For instance, common areas shared with other tenants (such as hallways, stairwells, or lifts) are often excluded from the tenant’s obligations and may fall under the landlord’s responsibility, or be subject to a separate service charge arrangement.
In some cases, particularly in internal repairing leases (IRLs), the landlord retains greater responsibility for repairs. In an IRL, the tenant is only responsible for internal repairs and maintenance, while the landlord remains liable for the external and structural elements of the building. This arrangement is less common in the commercial sector, although is sometimes found in shorter-term leases.
Even in an FRI lease, the landlord may still have some residual responsibility for repairs, particularly if the damage is not the result of ordinary wear and tear, but instead falls into the category of extraordinary repairs.
Who is responsible for extraordinary repairs?
Extraordinary repairs are often more contentious, as there are usually significant costs involved, plus they can disrupt business operations. In Scotland, the allocation of responsibility for extraordinary repairs depends heavily on the lease terms and the nature of the damage.
Under a standard FRI lease, tenants may find themselves liable for some extraordinary repairs, especially if the lease contains a dilapidations clause. ‘Dilapidations’ refer to breaches of the tenant’s obligation to maintain the property to a specific standard during the lease or when the lease comes to an end. In some cases, this extends to major repairs, such as structural work, which could be interpreted as extraordinary. For example, if a tenant has allowed a property to fall into disrepair due to neglect, they may be required to restore it to the condition stipulated in the lease.
However, in most cases, extraordinary repairs, especially those involving major structural or external elements of the property, are the landlord’s responsibility. This might include significant work on the roof, external walls, or the building’s foundations, as these are typically beyond the tenant’s control and fall under the landlord’s obligations.
Landlords are generally responsible for structural repairs that go beyond ordinary wear and tear. In addition, they need to rectify any issues arising from inherent defects in the building, such as subsidence or flooding not caused by tenant negligence. Repairs related to building regulations or health and safety legislation not accounted for at the start of the lease are also their responsibility.
The role of lease agreements
The lease agreement is the primary document governing liability for repairs in a commercial property. In Scotland, there is no statutory requirement that specifically mandates who must bear the cost of repairs; rather, the parties are free to negotiate the terms within the lease. The lease will typically specify whether it is FRI or IRL, and should clearly outline the division of repair responsibilities between the landlord and tenant.
A well-drafted lease will contain clauses covering the nature and frequency of required repairs. Additionally, it should identify the party responsible for specific types of repairs (e.g. internal or external), and include a schedule of condition, which records the state of the property at the start of the lease. This can help avoid disputes over dilapidations at the end of the lease term. A good lease will also have provisions for handling disputes over repairs, including the appointment of surveyors or arbitrators if necessary.
In commercial property leases in Scotland, the liability for ordinary and extraordinary repairs depends on the terms of the lease agreement, the nature of the repairs, and the classification of the work. As a result, careful negotiation and clear documentation in the lease are crucial for both parties to ensure that repair obligations are fully understood and agreed upon, minimising the potential for disputes throughout the tenancy. That is one of the important reasons why both the leaseholder and anyone taking on premises for business are represented by independent solicitors before concluding the lease. Unlike a residential lease – there is no consumer cooling-off period.
John Roberts is a Partner and Director at Austin Lafferty Solicitors. John has been with the firm for almost 20 years, with experience in all areas of business law.
