Reinstating alterations – take notice | Perspectives

29 June 2021 Reed Smith Client Alerts

Page d'accueil Perspectives Reinstating alterations – take notice

Once you get into the last 12 months of a lease term, as a commercial landlord, now is the time to begin thinking about and preparing the terminal schedule of dilapidations.

Auteurs: Katherine A. Campbell Brad Trerise

Some leases will prescribe a deadline for service, such as at least six months before the end of the term; others will be less prescriptive, but may provide for the costs of preparing and serving the schedule to be recovered only where it is served before or within three months of the end of the term. In any event, conversations about repairing obligations are best started early, to avoid the prospect of a dispute further down the line. Landlords may be happy to negotiate a cash settlement in lieu of the works being carried out by the tenant, especially where there may be plans for the property’s reconfiguration or upgrade. Tenants might also agree with this, in order to get certainty as to the extent of their obligations and avoid the time and cost of engaging contractors of their own.

Each case is different and the timing of the schedule will be different according to the landlord’s strategy, but the one thing that must not be missed is the notice to reinstate alterations.

If the tenant has carried out alterations to the property and there is a covenant requiring those to be reinstated at lease end, the terms of the covenant have to be closely looked at. In many cases, the cost of this reinstatement work can be the lion’s share of the claim. Is reinstatement dependent upon the landlord giving the tenant notice or otherwise communicating its requirement to reinstate? If so, how and when should that notice be given?

As to the ‘how’, it is generally accepted that service of the schedule of dilapidations can constitute valid notice to reinstate. As to the ‘when’, that’s slightly less clear cut.

In cases where no date is specified in the clause, the right construction will ordinarily be that the notice must be given at the latest immediately before expiry of the lease, but does the notice have to be given in time for the tenant to carry out the works before expiry of the lease?

There have been several cases which have dealt with the issue of notices served too late to enable the tenant to complete the relevant work before expiry of the lease. In such cases authorities point towards two options:

Notice may be given at any time up to the term date and the tenant is entitled to remain in occupation for such period thereafter as is reasonably required in order to complete the works. This would require the implication of a term or the grant of a licence.
A term should be implied into the lease that notice should be given sufficiently early to enable the tenant to complete the works by the term date.

Case law currently favours the first option.

In Scottish Mutual Assurance Society Ltd v. British Telecommunications Plc [1994], a licence to alter provided that a tenant “should reinstate the property to its original design and layout at the expiry of the Lease at its own cost should the Lessor reasonably so require” (emphasis added). The landlord served a schedule of dilapidations on 18 June with lease expiry occurring on 24 June. The tenant argued that the words ‘should the Lessor reasonably so require’ should extend not only to the reasonableness of the request to reinstate but also to the reasonableness of timing. The judge found for the landlord. He held that the intention was, given a reasonable requirement by the landlord that the work should be carried out, to require the necessary work to be put in hand at the time of, but not be completed by, the expiry of the lease, the tenant being allowed a reasonable time after the expiry of the lease to complete the works. The landlord’s notice was therefore held to have been given in sufficient time.

The judge added, however, that he was satisfied that the period between 18 and 24 June was an unreasonably short period for carrying out the reinstatement, so, had he accepted the tenant’s argument as to the construction of the clause, he would have held that the landlord’s requirement was not made in time.

It has to be said that there are pretty strong arguments in favour of the second option, however, since the first option presents several practical and legal difficulties:

If the occupation is to continue beyond the lease term, what will the tenant’s status be during the extended period of occupation?
Which, if any, of the terms of the lease will apply during the extended occupation?
How do you come to an agreement as to the length of time required to carry out the works?

It would not be surprising to see case law shift in this area, but in any event, the best way to avoid any such arguments is to make sure that any notice to reinstate is served as far in advance of the term date as your strategy will allow.

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Reinstating alterations – take notice

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