Commercial Landlords: Duties and Legal Obligations

Put simply, if you or your business lets property to a tenant for business purposes you will be a commercial landlord and as such will be subject to a number of legal responsibilities.

The starting point in assessing the responsibilities of the Landlord will be the lease document itself. It is important that landlords take advice in each scenario and have a commercially viable lease tailored to the property and parties involved.

In addition, landlords should be aware of several responsibilities imposed by legislation and commercial factors.

Insurance

Whilst it is often the case that the cost of insuring premises (or at least a proportion of it) can be charged to the tenant, it is usually the landlord who retains responsibility for enacting the policy.

The policy must include all those matters that are required to be insured under the lease, which most commonly will be flood, fire, vandalism, etc, which are standard on most policies.

Building insurance is often addressed, but it should also be considered whether a public liability policy or other industry-specific policies are also prudent and whose responsibility it is to maintain these. All parties should be under an express obligation to comply with insurance terms.

Repairs and Maintenance

The pertinence of certain legislation will differ depending on individual circumstances, but generally, where a landlord retains part of the property, they will also retain responsibility for maintaining the structure of the premises.

On larger estates, additional obligations are also likely to be imposed for the provision of usual services and additional services in common areas. These could extend to lifts, kitchen and bathroom facilities, landscaping, refuse collection, lighting and security to name a few. Well-advised landlords will incorporate terms into the lease, enabling them to enter for inspection of such areas or reclaim the costs of services. Protection should also be added to guard against circumstances where matters may be outside of a landlord’s control. An unexpected power cut should not put you in breach of a lease!

Health and Safety

As with repairing obligations, each situation will be unique but the impact of legislation such as the Regulatory Reform (Fire Safety) Order 2005 or Control of Asbestos Regulations 2012 should not be ignored.

Depending on whether the lease is of a whole premises or there are common areas, landlords may also be required to ensure adequate fire safety equipment is available and electrical and gas inspections are up to date and implemented.

Asbestos should be, at a minimum, “marked and managed” and kept under review.

Compliance with building regulations and codes is also required for all works and alterations.

Commercial tenants will be under a duty to their employees to provide a safe work environment and will need landlord cooperation to do so. Examples of these obligations include providing adequate lighting, ventilation and a reasonable temperature to work in.

As well as breaching the terms of most standard leases, neglecting repairing or health and safety obligations could negatively impact the validity or level of insurance in place. This, in turn, would breach mortgage clauses and expose landlords to further risk in terms of financial implications and protection of their investment in the property.

Energy Efficiency Standards

With some limited exceptions, most commercial properties are subject to the Minimum Energy Efficiency Standards (MEES). From April 2023, all commercial properties that are let (whether by a new lease or the continuation of a pre-existing lease) must have an energy performance rating of at least an E.

The government have proposed raising this to a minimum C rating by 2027 and a B rating by 2030, but this has not been implemented with any certainty as of the date of writing.

Security of Tenure

The law imposes procedures on landlords, which should be followed if you need to remove a Tenant from their property, whether this be amicably or due to a breach of lease terms. In all cases, the lease terms will need to be followed to the letter and we would always recommend this is done by a legal professional.

Some Tenants will enjoy “security of tenure” under The Landlord and Tenant Act 1954. This means they will have a right to renew their lease on similar terms at the end of the existing lease. In these cases, the landlord may only oppose renewal on very limited grounds.

It is important for the landlord to keep on top of renewal dates even in cases where security of tenure is expressly excluded to avoid the risk of inadvertently allowing the tenant to acquire security from inaction around renewal.

Responsibility to Lenders

It is easy to overlook the requirements of a lender when you own a property. However, if the property is mortgaged it is highly likely the property will be subject to restrictions which require the lender’s consent to dealings with the property. This would include granting a lease, further underletting or certain alterations and repairs.

Ultimately, the purpose of these restrictions is to protect the property value and the value of the lender’s security. Financing arrangements will stipulate that consent must be sought, and legal obligations followed relating to the property. Failure to do so will be a breach of the mortgage terms.

Business interests

Those responsible for managing commercial property will also owe a duty to their own business to maximise rental income and maintain property value.

Their own shareholders or those of the tenants may wish to impose other goals which will require amendments to property management. Examples could include commitments to energy efficiency and environmental sustainability, and landlords may encounter a request for “green clauses” to be included increasingly as tenants embark on a drive to “net zero”.

Whilst this is by no means an exhaustive list, and advice should be taken in each scenario, it is imperative that those responsible for commercial premises keep these matters in mind to avoid unintended or costly consequences. A well-drafted lease will address which party is responsible for each of these matters and strike a balance between the need to comply with legislation and keeping property costs commercially prudent.

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If you need legal assistance in relation to your business, please do not hesitate to get in touch with a member of our Commercial Property team or complete this online enquiry form, and we will be happy to assist you with your enquiry.