As the owner or manager of a commercial property, you’re responsible for meeting certain obligations for your tenants. Familiarising yourself with your commercial landlord obligations can reduce the risk of senior managers, directors and officers being held accountable for lax health and safety and poor building maintenance.
Your commercial property manager responsibilities
Like a residential landlord, you’re responsible for ensuring that your properties are safe, well maintained places. However, it’s worth knowing, although not always possible, you could transfer some of your landlord liabilities to your tenants in the terms and conditions of their lease.
Depending on the type of property and lease, you may be responsible for:
- Fire safety
- Maintenance and repairs
- Fixtures and fitting
- Waste management
- Asbestos monitoring and maintenance
- Gas and electricity
- Refrigeration, air conditioning and heating systems
Minimising your risks as a commercial property manager
Being a property manager can be rewarding but it also has its challenges. Address these challenges with these simple steps to help reduce risks and make sure your properties are legal.
Risk assessment – conduct an annual and thorough risk assessment for every property. Even though you might not be directly responsible for fire safety, always include it in your assessments. It should verify that all fire control measures are in good, working condition and who’s responsible for them.
Hire professional contractors – make sure contractors provide their own risk assessment and method statement as well as show evidence of their insurance before they begin any work.
Introduce PAT testing – portable appliance testing (PAT) isn’t a legal requirement for landlords but it can help ensure the safety of your tenants. Testing the electrical appliances and equipment you provide is an easy way to meet your obligation of keeping the property safe.
Correct storage – require that any chemicals your tenants may use for their business are stored in locked, metal cupboards.
Check water systems – hire a specialist contractor annually to conduct a legionella bacteria risk assessment for all of the property’s hot and cold water systems.
Make use of FRI or IRI leases – Full repair and insurance (FRI) leases can limit your liability in the event of an incident. FRI leases make tenants responsible for the costs of all repairs and insurance policies. In the case of a multi-occupancy building, an Internal repair and Insurance (IRI) lease would be more appropriate.
The Code for Leasing Business Premises
The Code for Leasing Business Premises (the Code) is a voluntary practice that promotes fairness in commercial leases. The Code helps ensure leases are clear, concise and authoritative. Including the following can help the process of forming a compliant lease:
Rent deposits and guarantees – A lease should clearly detail all deposit arrangements. It should include the amount, the trust account location and the arrangements for returning the deposit as well as any accrued interest.
Length of lease, break clauses and renewal rights – The length of the lease must be clear. If a tenant chooses to break the lease, they need to be up to date with their rent, give up occupation and leave behind no continuing sublease. Confirmation of whether a tenant is able to renew the lease or not should be included along with any relevant timescales.
Rent review – Make sure you clearly state when and how the rent review process will happen. Also, include details about how your tenant can take part in negotiations if they don’t agree with proposed increases.
Assignment and subletting – The lease should allow tenants to assign the whole of the premises, meaning should they need to move out they can pass the lease to someone else. Ensure the lease states that consent should be given in good time without unnecessary delays. If you allow subletting, the sublease rent should be the market rent at the current time.
Service charges – You must include your best estimate for service charges, insurance payments (if not an FRI lease) and any other outgoings that tenants will incur under their lease. You must also disclose known events that would have a significant impact on future service charges.
Repairs – Requiring tenants to leave the premises in the same condition as when they signed their lease is standard practice. But, repairing obligations should take into account the length of the lease and the condition of the premises.
Alterations and changes of use – Include details of which alterations require your consent. Such as those that could affect the services or systems of the property. Also, there should be no requirement to remove any alterations made, unless it’s reasonable to do so.
Insurance – If insurance is included in the lease, the policy terms should be fair, reasonable and represent value for money. The lease wording should clearly state that the tenant can request to see details of the policy. If the building is damaged by an insured or uninsured risk, rent payments should be suspended, as long your tenant did not cause the damage in a deliberate act. If the property is damaged by an uninsured risk and becomes unfit for purpose, tenants should be allowed to end their leases unless you agree to rebuild at your own cost.
Having a plan in place to monitor your properties and ensuring you create code complaint leases are easy ways to meet your commercial landlord obligations. Don’t leave yourself or your properties exposed to unnecessary risks by ignoring your responsibilities.
This article is based on information taken from the Code for Leasing Business Premises and is for information only. When preparing your lease you should ensure you seek legal advice.
Zywave Inc – Property Management Risk Insights: Commercial Property Landlord Liabilities