Disrepair: the tenant's options against a defaulting landlord

Posted on
The parties to a modern lease of business premises will have negotiated their respective repairing obligations from the outset, and so the obligations on the landlord to repair the premises, or any retained parts of a building, should be clear. 

It is often therefore relatively easy to ascertain when a landlord is in breach of its repairing obligations (although you should always check with your advisors to be sure).

But, once the landlord is in breach, what can a tenant do?

There are several remedies available, but deciding which one (or which combination) to employ will depend upon the particular circumstances.  A summary of each of the main options is set out below.

1. Specific performance

This is a court order forcing the landlord to do the works.

To obtain an order for specific performance a tenant will need to convince the court as to the urgency of the works and that any alternative remedies are inadequate.  This should not be too difficult in cases where the tenant remains in occupation with the result that the disrepair causes a continuous problem at the premises.  However, granting such an order is at the court's discretion, so a tenant would be wise to compile a detailed schedule, clearly identifying the disrepair, and a diary of the problems it causes, to help convince the court.

If granted, an order for specific performance will place great pressure on a landlord to remedy its breaches, as failure to comply will place it in contempt of court.  The works will be carried out at the landlord's expense (subject to any service charge regime).

There are serious drawbacks though. If the threat of a court claim is not enough to persuade the landlord, there is the up-front cost of going to court, and unless urgency is established, it will most likely have to wait until a final hearing before obtaining an order. This cost and delay makes this option unattractive to tenants in many cases. 

2. Damages

Tenants can of course claim compensation for financial losses.

There is no cap on the damages that a tenant may claim against its landlord for disrepair: the question is just how much the tenant has lost as a result.

Generally a landlord will not be liable until it has notice of the defect.  It will then have a reasonable period in which to remedy the defect before it will be in breach.  A tenant is unlikely to recover damages for losses suffered during this period unless a landlord unreasonably delays in carrying out the works required once given notice.

A tenant that remains in occupation of premises in disrepair will be entitled to compensation for the inconvenience, and this may result in a rental reduction. This is calculated by reference to the reduced rental value of the premises in disrepair with the assistance of an expert valuer. If the tenant has to vacate the premises, it will in principle be able to recover the cost of alternative accommodation.

A tenant may also be entitled to recover damages for loss of profits provided that, at the date of the lease, it was contemplated by the parties that the premises would be used for the purposes of the business that has suffered the loss.

The threat of these types of claims for compensation is often enough to persuade a wayward landlord to do the work.

There are several other types of compensation for which a tenant may claim and upon which your solicitor can advise further.

The normal legal complexities about claiming damages will apply.  Your legal advisor will be able to explain how this can influence any potential claim that you may have.

3. Self help

A tenant has a right to carry out repair works that the landlord should have done to the demised premises, and to recover the reasonable cost of the works from the landlord as damages.

Caution should be exercised in relation to carrying out any works to property retained by the landlord.  Speak to your solicitor about this before proceeding to avoid a claim for trespass being brought against you. However, when used properly (and combined with a strategy for recovering the cost) this can be a very quick and effective way of resolving the problem. 

4. Set-off

If a tenant has a genuine claim for damages against the landlord it can sometimes recover the money by making a deduction from the rent or other sums due to the landlord.

In these circumstances a tenant can simply withhold payment of rent and other sums until the compensation has been recovered.  It does not need to issue proceedings at court.  However, modern leases often exclude the right to withhold rent in this way so the lease should be checked carefully before this argument is raised.

5. End the lease

If a tenant can establish that a breach of a landlord's repairing covenant is sufficiently serious it may bring the lease to an end entitling it to leave.  This is a contractual principle, upon which you should take further advice as required. To qualify, the breach will need to be of such a serious nature as to deprive the tenant of the whole, or substantially the whole of the benefit of the lease.

Again, the threat of this approach is often a useful lever to get the landlord to do the work. 

6. Other remedies

There are various other options, which tend to be used less frequently, such as appointing a receiver or using environmental and health and safety legislation.  If in doubt, speak to your advisors.

Summary

The tenant of commercial premises has a useful tool box where the landlord breaches its repairing obligations. Finding the best combination of those tools, using them effectively, and applying pressure to a landlord is a fine art. The financial standing of the landlord will be relevant. The tenant's own finances, its need for the premises, and the terms of the lease will be key. The urgency of the works, their value, and whether they may be recovered from the tenant via the service charge will all also be relevant.  And of course the ongoing landlord/tenant relationship, business continuity and future plans will all play their part.