At the end of their leases, outgoing tenants of commercial space are generally advised that any obligation to return the premises in repair will require them only to repair the premises up to the standard at the date of the demise.  If any plant is beyond economic repair, a tenant is only bound to make a like for like or nearest equivalent replacement and does not have to bring the plant up to the current standards.  But if the landlord intends to refurbish the premises, does this mean that the tenant does not need to carry out any repairs because of the landlord’s works?

Under Section 18(1) of the Landlord and Tenant Act 1927, there is a cap on the damages which a landlord can recover at the end of the term.  Those damages shall in no case exceed the diminution in the value of the reversion.  In particular, no damages can be recovered if it is shown that the premises, in whatever state of repair they might be, would at the termination of the tenancy have been pulled down or such structural alterations made as would render valueless the repairs covered by the covenant.

Understandably, commercial tenants frequently argue that because any repairs which they might carry out would be superseded by the landlord's works, they can walk away scot free without doing any repairs.

In the recent case of Sun Life Europe Properties Limited v Tiger Aspect Holdings Limited [2013] the Technology and Construction Court [TCC] considered the respective positions of the landlord and tenant and to what extent 'supercession' applies. The case is a reminder that an outgoing tenant cannot escape liability for reasonable repair.

In that case, the TCC found that although the landlord had carried out extensive work over and above what might be described as 'repair', the landlord was not prevented from recovering the costs of repair which were necessary to remedy the breaches.  The court found that the starting point was to ask whether, assuming that the tenant had complied with his obligations, the landlord could have let or sold the building without any significant discount on the price to reflect the actual condition of the building. 

If that was the case, then 'supercession' would not apply and the diminution in the landlord's reversion would be reflected by the cost of putting the building back into the condition it should have been in when delivered up on expiry of the lease.

In the Sun Life case, the tenant was not successful in challenging the landlord's valuation evidence.  If the tenant had undertaken some minor improvements, (such as upgrading the toilets), the premises could have been re-let at the end of the old lease if the tenant complied with its covenants. The landlord was able to recover substantial damages notwithstanding that the refurbishment scheme undertaken had gone beyond what the tenant had been obliged to do under his covenants for repair.

Where tenants deliver up possession at the end of the term without carrying out repairs, they also risk exposure to claims for loss of rent for the period over which the landlord carries out any repairs. 

Tenants are advised to review their leases well in advance of the expiry date so that they can plan ahead.