Leases and statutory compliance clauses

Is it legitimate?

Statutory compliance clauses appear in most modern commercial leases. Their purpose is to shift the burden of regulatory responsibility (and the associated costs) away from the landlord and onto the tenant. Unfortunately, from the tenant’s perspective, they’re perfectly legal. That means in the event a statutory obligation is overlooked, e.g. asbestos present in the premises isn’t managed properly, even accidentally, the landlord can:

• undertake all the necessary rectification work without the tenant’s permission
• pass the entire costs of the work onto the tenant; and
• take further enforcement action against the tenant for “breach of covenant”.

Risk. This could result in the company losing its lease and the directors having to meet a claim for damages if they’ve given personal guarantees.

Do your homework

So, having spotted this type of clause in a draft lease, the directors must do their homework. Statutory compliance clauses cover too many pieces of legislation to mention here in detail, but one of the main ones is the Town and Country Planning Act 1990. It controls what an occupier can and can’t do in the premises.

Tip. As a breach could have a detrimental impact on the value of the landlord’s interest in the property, the company should check with the local authority to ensure its proposed use of the premises is allowed before it accepts the lease.

Fire safety issues

In addition, under the Regulatory Reform (Fire Safety) Order 2005 (FSO), as soon as the company takes on the lease, one (or all) of its directors will be personally responsible for fire safety at the premises. But here’s the catch. If the premises have been inspected by the local Fire & Rescue Service (FRS), and are subject to an enforcement notice, e.g. work must be undertaken to rectify potential breaches of the FSO, that liability passes directly from the landlord to the directors at the point the lease is signed.

Note. The same principle applies for health and safety legislation; you will become responsible for any enforcement action taken by the HSE.

Tip 1.Therefore, in your due diligence checks, don’t just request sight of any enforcement notices served on the landlord by the local FRS and/or the HSE. Enquire whether the premises have been subject to any inspection, or routine visit, by a local enforcement officer in the past twelve months. It’s also possible that advice was offered to the landlord or a previous tenant, i.e. formal action wasn’t taken, so find out if it was followed.

Tip 2. Because a statutory compliance clause can be so far-reaching, you should resist them in short-term leases. Where longer leases are involved, try to restrict the clause to those statutory obligations which only affect the company’s use and occupation of the premises.

Tip 3. Finally, check that the clause doesn’t oblige the company to incur capital expenditure, or improve the property in any way, to comply with statutory requirements.