Property repair is an area which is often overlooked but can become very costly when you come to sell your business. There is a misconception amongst many practice owners that the landlord is responsible for maintenance and repair, so long as the tenant continues to pay rent.
Practice owners will have either a full repairing and insuring (FRI) lease or a schedule of condition; such repairing obligations will be subject to the lease under which you occupy your property. Understanding the significance of your repairing covenant, and keeping on top of repair works, will result in a smoother and quicker process should you decide to sell.
This type of lease is favoured by many landlords. The maintenance of the property including its structure, interior and exterior, will all be the sole responsibility of the tenant throughout the term. At the end of the term the property must be returned to its original condition by the tenant, including the removal of any alterations and in good and substantial repair and condition. (Even if this means returning the property in a better state of repair than it was in when you took on the property.) In the context of a sale, the purchaser will commonly require either:
- an amount to be held back in respect of dilapidations (amount required to put property into good and substantial repair and condition from the completion monies) or
- repairs to be undertaken before the sale is finalised, as the purchaser would potentially be required to carry out repairs required as a result of changes caused by the seller.
Schedule of condition
This form of lease is popular with tenants and serves as a visual reference point in the event of a dispute between parties in the future. A surveyor would inspect and photograph the interior and exterior of the property and produce a written and photographic schedule which would be annexed to the completed lease. The repair clause in the lease would then be qualified, meaning that the tenant would want to keep the property in good repair and condition, but would not need to put it in a better state of repair and condition than evidenced in the schedule. The purchaser taking an assignment of this type of lease would undertake a survey of their own and use the schedule as a reference point to determine what sum should be held back from completion monies or what works should be undertaken before completion.
One thing for the sellers to bear in mind is that, although a photographic schedule of condition does not oblige the tenant to improve the property at the end of the term, it does not put any obligations on the landlord to improve it either. If there are items of disrepair it would be at the detriment of the owner who is trying to run or sell their business if these repairs were not carried out.
Schedule of dilapidations
At the end of the term the landlord may instruct a surveyor to prepare what is known as a schedule of dilapidations, which estimates the costs involved in putting the property into the condition required by a lease. The landlord may accept a sum of money in lieu of the repairs being undertaken; however, it is not unusual for such costs to be unrealistic. It would therefore be advisable for the seller to always have an independent survey carried out to verify the sums demanded by the landlord and, if required, to negotiate with the landlord’s surveyor.