The end of a lease can be a period of stress for many commercial landlords and tenants, and the condition of the property can be a cause of contention between the parties.

When yielding up, it is important to carefully consider the specific provisions within the lease and the potential interpretation of those provisions; a failure to comply could result in significant financial liabilities, or in lengthy and costly legal proceedings.  This has recently been seen in the case of Pullman Foods v Welsh Ministers [2020] EWHC 2521 (TCC).

Pullman Foods v Welsh Ministers

In this case, the lease contained a yield up provision that the property should be left in “good and substantial repair and condition to the satisfaction of the [landlord]”.  It also specified that any buildings erected on the property by the tenant must be removed.  In the process of removing the buildings, the tenant’s contractors caused damage to asbestos.

It was determined by the Court that the presence of disturbed asbestos meant that the property was not left in a good condition and it would still cause a breach of the repair covenant if asbestos had already been present in the property prior to the tenant taking the lease.   The reasoning of the Court was that the property was unsuitable for a new tenant to move in without work to remove the asbestos, therefore the property could not be considered to have been left in a “good condition”.

“Good Condition”

The Court has highlighted the difference between a yield up provision requiring the property to be in good “repair” and “condition”, the latter being a broader term to include deterioration that is not caused by damage.  It is therefore not enough for a tenant to simply repair damage caused to the property during the term of the lease if the repairing obligation includes keeping the property in good “condition”. In this case they must go beyond repairing to ensure that the condition of the property meets the landlord’s expectations.

The Court has also clarified that there is some discretion as to what can be considered to be “good condition”, so the landlord need only show that their judgment is within a reasonable range of opinions.

Clearly, this will cause some discomfort for tenants as the potential for a landlord to use the term “condition” to increase the repair obligations and liability of the tenant.

Advice to Tenants

We highly recommend that a schedule of condition is completed by a surveyor on commencement of a lease.  This will provide some protection of your position and clarity in relation to any claimed dilapidations or deterioration in condition and it is a useful tool in avoiding exaggerated or unfair dilapidations claims.

A schedule of condition should be:

• Completed by a surveyor;
• Include photographs and/or a report describing the condition of the property;
• Included with the lease when it is executed;
• Accepted by all parties to the lease as being accurate.

At the end of the lease, if the landlord intends to raise a claim for dilapidations, the schedule of condition will be used as a guide to the prior condition of the property and the landlord will be unable to claim for damage that was already present and not caused by the tenant.

Furthermore, it is also important to consider the careful drafting of the lease to ensure that you are not under an obligation to yield up the property in a better condition than when the lease commenced; this should also be evidenced by a schedule of condition.

If you are a landlord or a tenant and you would like further advice in relation to the drafting of a lease, please contact Laura Pyatt, Associate Director in our Commercial Property team, on 01543 431181 or by email: lpyatt@ansons.law

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