Many leases contain reference to specific regulations or Acts of Parliament that the tenant must comply with and in respect of these, the tenant is generally fully aware of their obligations. For example, any well drafted alteration provisions will set out in detail the tenant’s obligations under the Construction (Design and Management) Regulations 2015. The lease will more than likely contain obligations or restrictions on what the tenant must do or is prevented from doing (without landlord’s consent) in respect of planning pursuant to planning legislation. A number of these obligations will be reported on in a tenant’s legal report on the lease and the tenant is likely to be fully aware of its obligations in respect of compliance with these pieces of legislation.
However, what about the other, less well known statutes that the tenant might not even know about, let alone actively comply with during the course of the lease? Many leases contain a “boiler plate” clause relating to the tenant’s obligations relating to statutory compliance. Ours looks something like this:
“[The Tenant is] …to comply with all laws affecting the Premises or their use and with any notice or order served by a Competent Authority”.
The effect of such a clause is wide reaching. Below is a non-exhaustive list of the types of statute a tenant should be complying with, which not all tenants will be aware of.
This article does not propose to delve deep into the hot topic of EPCs and the newly implemented Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 which came into effect on 1 April 2018. There is significant debate at present as to whether a landlord can compel a tenant to bring the property up to a minimum “E” rating under the aforementioned generic tenant covenant to “comply with all laws”. For more information on these regulations please see our previous articles ‘Minimum Energy Efficiency: it’s all about MEE MEE MEE’ and ‘A greener and more pleasant land?’.
Moving on to those less well known regulations that tenants should be mindful of:
It is likely that most properties we deal with are caught by compliance with the RRO which details the main fire safety duties imposed on “the responsible person”. The responsible person is usually the owner of the property (entitled to rack rent from the property if it were let rather than a freehold reversion subject to a 999 year lease) but there can be other responsibilities for compliance with the RRO which run alongside the obligations of the “responsible person”. The most common example of this is in a multi-occupied building where the landlord will retain responsibility for the common parts (and any voids) and each respective tenant will be responsible for their own demise.
The effect of the general compliance clause is to enforce the tenant’s obligations in respect of the RRO for their own demise, but it should be noted that the landlord cannot require the tenant to carry out specific works pursuant to this general compliance clause unless a notice has been served by a “competent authority”.
Section 2 of this Act contains regulations relating to the smoking ban. These provisions relate to any properties that are “open to the public” or used as a place of work, so are likely to cover the majority of let properties. Tenants should therefore be aware of their obligations pursuant to the HA.
The majority of tenants will be aware of the obligation to ensure that the property is kept smoke-free but some may not be aware that it is a criminal offence “for a person that controls or is concerned in the management of smoke-free premises” to fail to stop people smoking in the premises.
Both the tenant and the landlord are likely to be “a person that controls or is concerned in the management of smoke-free premises”, so the landlord will seek to rely on the tenant’s obligation to comply with statute, backed up by a general indemnity clause from the tenant if there is a breach of these provisions.
This is not actually a law that the Landlord can pass all liability to the tenant in respect of. However, a well drafted lease will always include an obligation on the Tenant to inform the Landlord of any defect in the property and/or building (which the Landlord is responsible for) which may give rise to liability under the DPA. A well advised tenant will of course want this clause to be limited so that their obligation to notify the Landlord only “kicks in” once the Tenant actually becomes aware of the defect.
In respect of the let premises, the Tenant will usually be under a full (or limited) repairing obligation which will include any defect in the premises and the Landlord will usually have this backed up by a general indemnity from the tenant for any breach of covenant in the lease. Whilst the Landlord cannot therefore absolve itself from liability under the DPA, it may have a claim for damages against the tenant pursuant to this indemnity.
The DDA contains obligations generally on employers not to discriminate against disabled employees and there are further duties imposed on respect of the requirement for physical access to the property in question. If there are physical barriers to accessing the property, the DDA would require the employer (here, presumed to be a tenant of an office/retail space) either to remove it or provide reasonable means of accessing the premises otherwise, either by altering the route or providing a way to avoid an obstacle in question.
You might think that this presents an obvious conflict between what the tenant is required to do under the DDA and the likely restrictions on making alterations to the premises, imposed by their lease. The DDA gets around this by adding an implied lease term which permits the tenant to make “reasonable alterations” in order to comply with the DDA with landlord’s consent. The landlord is then unable to unreasonably withhold its consent (although it may impose any condition that is considered reasonable in the circumstances). A tenant may also present a defence that landlord’s consent was unable to be obtained (provided it has formally applied for it in writing) and this has led to an inability to comply with the DDA. However, a tenant should bear in mind that such a defence will not absolve them of liability entirely where there are other reasonable means of complying with the DDA without making physical alterations to the property in question (this could be as simple as placing chairs out in a location where people who are unable to stand can access them), so a tenant must consider all options first.
The above examples are a handful of regulations that a tenant must comply with pursuant to the statutory compliance covenant; they are by no means exhaustive. Tenants should familiarise themselves with all regulations that affect occupiers of a property and, in addition, those who are “service providers” and members of the general public who access the property in question. In addition, tenants should alive to the possibility of new laws and regulations coming into force during the life of the lease, which may impact this covenant. If a tenant is not fully up to speed with their obligations pursuant to this clause, what are the possible implications?
Obviously, enforcement action can be taken by the relevant authorities and a whole host of sanctions could apply. However, we will consider briefly the implications of enforcement by the respective landlord. A significant breach of covenant of the lease may give rise to a forfeiture claim by the landlord or even a claim for specific performance by the landlord. For a valuable lease, the ramifications of having the lease forfeited (or forfeiture proceedings instigated) would be significant.
A less obvious implication of non-compliance is the possible impact this could have on a tenant’s break option. If the break is conditional upon the tenant “having complied with all of the tenant covenants in the lease by the break date” (which a well advised tenant would always be told not to agree to), the landlord may be able to argue, on the break date, that the break was invalid as the tenant was not fully compliant with the tenant covenant to comply with all laws/regulations. This would have a serious impact on the tenant’s business as they would be tied into the lease liabilities for a further five years or perhaps longer (the remaining life of the lease) as a direct result of failing to comply with a minor obligation imposed by statute that, perhaps, the tenant was not even aware of.
Roland Brandman, Senior Associate, Fladgate LLP (email@example.com)