Briefing Note - Repair Covenants in Commercial Leases

Over the years there has been much litigation between property owners and tenants because of breaches of contract relating to repair covenants in leases. Whether they were real or supposed is key to deciding whether a breach has actually taken place.

Breaches of Covenant

The basic principle is that where there is a covenant for repair which is breached, the offended party can recover damages for their loss. However, the loss must be an actual loss, not a hypothetical one.

An example illustrates this. A tenant failed to maintain the office building they had occupied and admitted that this breached the repairing covenant. The repairs cost £350,000, but the landlord claimed an additional £800,000 for loss of rent and other costs because he had been unable to let the property for 19 months after the expiry of the lease.

The claim failed because the court accepted expert evidence that the market was oversupplied with similar premises at the time and even had the property been vacated fully repaired, the landlord would not have been able to let it any sooner. The lease did not specify compensation to be paid for the loss of a chance to let if the premises were vacated whilst in disrepair.

Premises in Repair

Keeping premises in repair can, in some circumstances, even allow the demolition of the property, as Sheffield University found out first hand. In the 1950s, they had let a property on a one thousand year lease with a standard tenant repairing clause in place. However, the covenants were silent as regards alterations to the premises. The tenant decided to redevelop the site. The University objected, arguing that the repairing covenant carried an obligation not to demolish the building. In view of the length of the lease and the absence of a limitation on altering the premises, the court ruled that the demolition and redevelopment did not breach the covenant.

The repairing clauses in leases are often dealt with as something of an afterthought, but as these cases prove, they do deserve careful attention.