This article was published in www.screentrademagazine.com / Autumn 2016 / screentrade
We outline some of the complexities of dealing with disrepair in cinema premises and their negotiation.
The first waves of multiplexes, built between the mid-to-late ’80s and mid-’90s, are now approaching up to 35-years-old and, as the buildings have aged and undergone refurbishment, issues relating to their condition and repair-costs have inevitably become more frequent. Where a cinema is owned as a freehold, the operator has complete control over both when and how repairs are undertaken or, for that matter, whether it chooses to effect certain repairs at all. However, the situation becomes more complicated when the cinema operator occupies, pursuant to a lease and under which it has obligations, to maintain the premises in good repair.
Fortunately, it’s usually the case that while the lease is continuing, the landlord is unlikely to be overly concerned with the state and the condition of the premises provided that any disrepair does not affect the value of the reversion; however, this changes as leases approach expiry. At such times, it is usual for landlords to instruct their surveyors to prepare a ‘schedule of dilapidations’, setting out any disrepair found at the property along with an estimate of the cost of the work. The cinema is then faced with a choice of either carrying out any repairs during the course of the lease, or leaving the repairs incomplete and negotiating a damages payment with the landlord.
Repair obligations in leases are necessarily vague and cannot specify exactly which repairs the cinema operator will be responsible for. Unsurprisingly, where a landlord claims for repairs, it will resolve any ambiguity in its favour and, for this reason, it is often sensible for a cinema operator to instruct its own surveyor to provide an opinion on what is truly recoverable.
During the lease
There are, of course, situations in which repairs cannot be left until the end of the term – either because the disrepair affects the running of the cinema, for example a water leak into the auditorium, or because the landlord has served notice in accordance with the lease requiring that repairs be undertaken during the term. In such situations, before commencing any works, the cinema operator should revert back to the terms of the lease, to check that the repair(s) they intend to undertake fall(s) within the repairing obligations set out in it. If the operator is in any doubt as to whether it has the right or the responsibility for a certain repair item, it should seek professional advice.
While the arguments about the cost of repairs are most likely to occur at the end of the lease, their outcome is predetermined at the onset via the wording of the repairing covenants. It is therefore important for cinema operators to ask questions about the age, state and condition of various parts of the proposed cinema premises before signing any lease, for example; When was the roof last replaced? When were the lifts last serviced? How old is the air conditioning plant? If the answers raise concerns, the operator should ask its surveyor to advise on the likelihood and cost of any large repair works so that it can factor this into its costs and seek adjustments to the lease terms where appropriate.
One common mistake, however, is a belief that where premises are in poor condition at the start of a lease, any repair obligations are limited to keeping the premises in the same poor state. This is incorrect, as an obligation to repair includes a duty to put premises into repair if they aren’t already, for example; an operator with an obligation to keep premises in repair, that takes premises which have a broken heating system, would be required to repair that system and return the premises with a working system at the end of their lease. If a cinema operator wishes to limit its repairing obligations, it should consider inserting a schedule of condition into the lease, which provides that the premises do not need to be returned in any better condition than that recorded in the schedule.
If you have any questions about this article, please do not hesitate to contact the property litigation or property team.