Expert Opinion: should tenants invest in inefficient properties?

Tenants in commercial property are aware that property related overheads form a major part of any company’s outgoings so should tenants leave or continue to invest in inefficient properties?

On top of rent, costs such as utility bills, service charges and repair and maintenance payments, many commercial tenants come to the conclusion that continuing to invest in inefficient properties is akin to pouring money down the drain. Increases in bills could be down to inefficient heating systems, poor air conditioning units, out-dated insulation or the property is in a general state of disrepair.

In circumstances such as these, tenants face a difficult decision – do they just put up with paying out more than they want to, or do they look for a way to reduce their overheads? If they decide on the latter, another critical question is whether it is better to leave and seek a cheaper, more efficient home for your business, or stay and try to improve what you already have.

Stockport based Fairhurst Estates examine some of the issues that may influence a tenants decision and share their Expert Opinion

The difficulties of breaking a tenancy agreement

Making the decision to leave your premises in search of somewhere with lower overheads is fine if you are approaching the end of your tenancy agreement. If you are not happy with the costs involved, it makes sense to hold on for the end date, and in the meantime seek out a better option.

Things are much more complex if you are right in the middle of a tenancy term. The legal position is that you are responsible for paying rent on the premises until end date of the agreement, even if you choose to leave early.

It may be possible to negotiate with your landlord, but this will usually depend on having a new tenant ready and waiting to take over your agreement so there is no break in rental payments. Most landlords will be reluctant to go out and actively seek a new tenant when they already have one tied to a lease. Ultimately, negotiation will depend on the relationships individual tenants have with their landlord.

Another potential route out is if a tenancy agreement contains a break clause. This is a special allowance written into the contract which allows either party to terminate the lease after a certain amount of time, but before the full term, without a penalty for either party. Tenants must give their landlords two months’ notice if they wish to activate a break clause.

The cost of repairs

Commercial tenants might expect that their landlord has an obligation to keep premises, including all fixtures and fittings, in a reasonable state of repair. While this is true, this does not necessarily extend to ensuring that everything is as modern and efficient as possible to save their tenants’ bills.

On heating systems, for example, as long as they comply with health and safety and environmental standards, the fact that they cost twice as much to run as a more up-to-date model is of no concern to the landlord.

Tenants wishing to upgrade and improve rented premises have to weigh up potential costs against long term benefits. If they are expecting or hoping for contributions from the landlord, it boils down to the terms of the lease. If there is nothing in the contract which makes the landlord responsible for a new boiler installation, there is nothing that can compel them to contribute unless the equipment fails completely.

In all circumstances, tenants should seek professional advice before carrying out repairs or improvements on premises. This is important both to check out whether at least some costs could be recovered from the landlord, and also to ascertain what kind of permission is required. If a tenant pushes ahead with an unauthorised improvement, they could end up having to pay to put the premises back in their original condition once the tenancy expires.

With thanks to Fairhurst Estates for providing their Expert Opinion