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End of the lease - What is the property to be handed back?

A recent case that we were involved in highlights some of the issues that can arise at the end of a lease. At the end of their occupation a tenant is required to hand back the property to the landlord. The question arose, “What is the property to be handed back?”

During the course of the tenant’s occupation the original landlord had sold their interest and there was now a new landlord. The tenant company had been taken over and there had been a change in the local management. The original ten year lease by which the tenants had occupied had come to an end and had been renewed. The property had been built as open plan offices, but at some stage internal alterations had taken place to sub-divide part of the property into private offices.

The landlord wanted the property handing back in an open plan state. However, was the landlord correct to require this? Had the property been sub-divided prior to the original lease or had it been sub-divided at a later date?

It was accepted that the tenant should hand the property back in a good condition, in accordance with the terms of the lease. The tenant argued that this should be the condition at the date the lease was renewed, not when the original occupation took place. At this time the property was certainly sub-divided.

In the absence of a reference in the lease as to whether the alterations should be taken into account then the tenant would be in a strong position. The effect on the landlord would not be insignificant, because the landlord intended to re-let the property in an open plan state and, thus, would take out the sub-divisions. A landlord could not, therefore, require the tenant to put areas which were to be reinstated into a good condition, nor require redecoration of these areas, since any works that the tenant would do would be undone by the landlord’s later works.

On the other hand, if the landlord could show that the lease documented that the property was to be handed back in an open plan state, then the tenant would have to incur a significant cost in making good.

The case highlighted the need to document in detail what is demised at the commencement of a lease and when a lease is renewed in what condition the property should be left at the end of a term. This is just one area where good advice taken at the right time can save money and heartache at a later date.

Added: 04/10/2018

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