Insights

Do I need to rethink my lease covenants to keep up with technology?

9/04/2019

Today I read an interesting article in the EG about whether landlords should be updating their approach to repairing and reinstatement covenants in the age of the smart building. 

As uncertainty over our economic future continues (don't use the "B" word..!) and the digital age of online shopping grows ever stronger, the playing field for retail and office tenants is undoubtedly changing. Tenants are demanding shorter, more flexible lease terms, in smart buildings fully equipped with lightning-fast Wi-Fi and electrical installations. This begs the question - are our standard repair and reinstatement covenants sufficient? 

Limiting repair covenants by reference to a schedule of condition (whether written or photographic)  is common practice, particularly in shorter-term leases, but given the fact that buildings may now be leased with installations and equipment in a state far removed from the traditional shell and core, it makes sense to commission reports from appropriate qualified professionals - e.g. lift engineers, heating and cooling specialists etc, to avoid issues arising in relation to whether the tenant has properly maintained such installations. 

The article also suggests that repair covenants, which traditionally require the tenant to keep conducting media and plant etc properly maintained in good working order, may need to be expanded when smart technology is involved to ensure the tenant carries out proactive preventative maintenance work. This could include spelling out what technical standard the tenant should be maintaining. 

These are certainly conversations worth having at the outset of a transaction to ensure that costly technology is maintained, and help protect the landlord from time consuming and potentially expensive disputes when the tenant vacates. 

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With buildings becoming smarter than ever, repairing and reinstatement covenants are likely to need a good nip and tuck sooner rather than later.

https://www.egi.co.uk/