If your pharmacy had a serious building defect, who do you think might be liable for repairing it? Most pharmacists are quite surprised to hear that it is frequently the pharmacist who has this responsibility. The reason is that, under what is known as a full repairing and insuring lease (which is the most common), the tenant is responsible for repairing and sometimes renewing the property. This is especially so if your lease is of the whole building.
Are you safe, and is it the landlord’s responsibility, if you only have a lease of part of the building? If the landlord is responsible to keep the structure and common areas in repair, then it is likely that the pharmacist as tenant will pay its share of the cost of any repairs of defects by the service charge.
The property or building as described in your pharmacy lease may also include equipment such as air conditioning systems, lifts, boilers and other items which could all be defective and partly or wholly your responsibility. Mechanical, electrical services and plant often cause problems – and you don’t know there is a problem until, for example, the weather turns very cold and the heating does not work.
What is a defect?
Generally, we divide defects into two groups: patent defects, which are those that are obvious and immediately apparent, and inherent defects. Inherent defects are not immediately obvious and may be difficult to find.
Defects can arise in the design, materials or workmanship of a building and its plant, as well as in the supervision of contractors and site preparation works.
What should you do about defects?
Ideally, if you are taking a lease of a pharmacy, you should instruct a building surveyor to carry out a full survey so you are aware of any obvious problems. Then you should try and get your landlord or the seller to fix them at his cost.
It is often more difficult when the pharmacy is still being built. If you have the ability to have your surveyor monitor the works, this may help to protect you from any defects arising. You should also try and get obligations on your landlord to consult you about snagging items and defects which arise under the defects liability period in the building contract and to get them remedied.
Of course, by their nature, inherent defects will not necessarily be seen and in which case you will need to try and negotiate some drafting in your lease and any sale agreement or agreement for lease to further protect your position
Ideally you would exclude liability for repairs or costs arising out of an inherent defect in the lease, and have an obligation on the landlord to carry out any necessary works at its own cost. This is often difficult to achieve and many landlords and developers will not accept such an obligation. They expect you to rely on surveys or (if applicable) monitoring the building process.
An alternative is to impose an obligation on the landlord to enforce its rights against the building contractor, architect, mechanical and electrical engineer and other members of the building team; whoever is responsible for the defect. The costs of enforcement would usually come out of the service charge if the pharmacy is part of a building, (or be required to be paid by the tenant for a lease of the whole building) but the landlord should have to credit the service charge with any moneys he recovers. Obviously a pharmacist could still be liable for some costs here, especially if the landlord is unsuccessful.
Landlords might offer collateral warranties (which are contracts) direct from the relevant building contractor, architect and other members of the building team, who effectively agree with you to be responsible for the work they have carried out. These are often available if you are the tenant of the whole of the building, but less available if you are a tenant of only part of a development. However, it is well worthwhile insisting on these if you are unable to agree with your landlord to exclude liability for repairs from your lease.
These are not ideal as if one or other of the building contractor and building team become insolvent, you may not be able to recover any costs of repairs against them. Also, they are only as good as the original building contract and appointment of the building team. If those documents are flawed, then your collateral warranties will be too.
There are a variety of ways to protect your position and you should consider these carefully if you wish to avoid a nasty financial obligation.
This article was first published in Pharmacy Business, May 2016.