The Repairing Covenant for Latent and Inherent Defects in Commercial Leases

A tenant of a commercial property –especially in a newly built commercial centre— must take special care when reviewing service charge and service costs provisions. It is customary that the landlord passes on the liability for the maintenance and the repair of the building to the tenants. A typical repair and maintenance provision in a commercial lease is something like the following:

The Tenant covenants with the Landlord to pay a reasonable proportion of costs of Repairing (and by way of repair, renewing, rebuilding and replacing), decorating, maintaining and cleaning the foundations, roof, structure and exterior of the Building and all Common Parts and Conducting Media.

However, if there are inherent and latent defects in the building such as defective design, defective workmanship or materials (or services such as air condition) or defective supervision of the construction, such liabilities will pass on to the tenant. This does not seem to be a fair outcome. Why should the Tenant be responsible for the mistakes of the developer or the professionals in the original construction? The tenant should therefore attempt to exclude such costs from the provisions relating to service costs. The landlord on the other hand will try to resist such an exclusion particularly if they are not the original developer.

If the landlord is unwilling to exclude the costs of addressing the inherent defects of the premises from the service charge provisions, then the Tenant may agree to such costs provided the landlord accepts the obligation to enforce its rights against the original parties responsible for such defects, such as the builder, architect or surveyor. Alternatively, the tenant may insist on the insurance policy to cover any inherent or latent defects in the premises, although the insurance premium for such policies may turn out to be high if the building is over 10-12 years old.

By Alireza Nurbakhsh