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Yielding up: A crucial clause in your end of lease obligations

Leases usually include the responsibilities of both landlord and tenant when a lease finishes. Clarity of clauses will save time and money, says commercial property solicitor Jay Gorasia of Neves Solicitors.

Jay Gorasia.

COMMERCIAL property leases are complex and intricate legal documents that regulate the relationship between landlords and tenants. Among the myriad of clauses within a lease, the “yielding up” provisions are one of the most critical and, if not properly drafted, can result in significant expense for the landlord or tenant when the lease ends.

Yielding up refers to the tenant’s obligation to return the property to the landlord in a specified condition at the end of the lease term, whether this be by early termination or expiry of the term. This provision outlines the responsibilities of the tenant regarding the state of the premises, repair, removal and replacement of any fixtures, any obligation to reinstate following alterations made during the tenancy and the requirement to vacate the property.

The primary aim for the landlord is to safeguard the value of their property to ensure that it is returned in good condition free of any third-party occupiers and to enable the landlord to maintain or enhance any income or profit on future leases or potential sales. To achieve this, a strong yielding up clause should require that, at the very least, the tenant leaves the property in the condition that it was in at the beginning of the lease term and that no parties remain in occupation.

If the landlord is not vigilant, they can be left with a large expense as well as periods when the property is unlettable or unsaleable because of the works required to make good the tenant’s damage or neglect or remove works of the tenant to the property to reinstate its original condition before the lease commenced.

The primary aim for the tenant, however, is to avoid picking up the cost of putting the property into a better state of repair and condition than it was in when the lease commenced and paying the bill to remedy any inherent defects arising from poor design, workmanship or materials when the property was constructed which may have materialised during the lease term as well as expenditure for parts of the building that have deteriorated over time, such as roof repairs or replacement.

Failure to plan for dilapidations, repairs, reinstatement costs or improvements required to restore the property to its original condition can result in a significant financial burden for tenants at the end of a lease term which can outweigh the rental costs under the lease.

Tenants often make alterations or improvements to the property during the lease term to suit their business needs. Failure to obtain landlord consent or document such changes can lead to disputes over the required reinstatement and its costs. If a landlord agrees that reinstatement is not required, this needs to be documented or the yielding up provisions may require the tenant to remove any tenant works carried out to the property and to ensure the property is reinstated to its original state.

It is imperative that a tenant seeks legal advice to minimise the likelihood of disputes. When landlords and tenants understand their responsibilities and document this clearly in the lease, the potential for future legal involvement decreases, saving both parties time and money.

Tenants must navigate potential pitfalls by paying close attention to the wording, planning for dilapidations, and documenting alterations. Conversely, landlords benefit immensely from strong provisions that protect their property’s value, minimise disputes, and facilitate seamless transitions between tenants.

This article is published on behalf of Neves Solicitors. Neves Solicitors have experienced solicitors at hand to assist landlords and tenants in navigating through commercial leases. For expert assistance with any commercial property matter, contact Neves Solicitors.

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