Commercial leases: Is the tenant or the landlord responsible for extraordinary repairs?

Some commercial leases, known as full repairing and insuring or FRI leases, might appear at first glance to place full responsibility for the condition of the premises on the tenant. However, Scots common law draws a clear distinction between ordinary repairs (for which tenants are liable) and extraordinary repairs (the responsibility of landlords). Extraordinary repairs typically include substantial renewals, latent defects, long-term deterioration and serious structural damage.

The common law will apply unless the lease clearly states otherwise. Even in an FRI lease, which ordinarily places wide repairing obligations on the tenant, liability for extraordinary repairs will not be transferred unless there is clear wording or a necessary inference to that effect. And it is not easy to define exactly how landlords can vary the common law position, or to what extent. Two Court of Session decisions – Co-operative Insurance Society Limited v Fife Council [2011] CSOH 76 and Kilmac Properties Limited v Tesco Stores Limited [2021] CSOH 70 – provide important guidance on this point.

Taken together, the cases confirm that while parties are free to allocate repairing obligations by contract, a tenant will not be liable for extraordinary repairs unless the lease clearly and expressly displaces the common law position. Only including broad repairing obligations will not suffice.

Co-operative Insurance Society v Fife Council

This case concerned a 25-year FRI lease of commercial premises in Glenrothes. At lease expiry, the landlord sought damages in excess of £1.3 million for dilapidations, arguing that the tenant had failed to return the premises in the condition required by the lease.

The tenant contended that many of the works claimed were extraordinary repairs for which it was not liable at common law. The landlord relied on the breadth of the repairing obligation, which required the tenant to keep the subjects in good and substantial repair and “maintained, renewed and cleansed in every respect”, as well as the insurance provisions.

The court rejected the landlord’s position. While the repairing obligation was wide, it did not go beyond the common law position. References to “renewed” did not amount to an express obligation to undertake extraordinary repairs. The court accepted that repairs may involve renewal, but not substantial or extraordinary renewal. It judged that, otherwise, the clause would impose an unreasonable and onerous burden on the tenant, particularly given the length of the lease.

The Court concluded that the parties did not intend to innovate on the common law position, and liability for extraordinary repairs remained with the landlord.

Kilmac Properties v Tesco Stores

In this case, the landlord claimed that the tenant’s obligations under an FRI lease extended to extraordinary repairs.

The relevant repairing clause in the lease required the tenant to keep the premises in good and substantial repair, condition and decoration. The landlord argued that the scope of this obligation was extremely wide, and inconsistent with one limited to ordinary repairs.

The Court disagreed. Applying ordinary principles of contractual construction, it held that there was no sufficiently clear wording transferring liability for extraordinary repairs to the tenant. It stated that the lease made no reference to rebuilding or substantial renewal, nor did it identify the types of damage typically associated with extraordinary repairs.

Consistent with the Co-operative Insurance case, the Court confirmed that even express references to structure or renewal do not, on their own, impose liability for extraordinary repairs. The action was dismissed.

What does this mean for landlords and tenants?

The two cases underline that, even in FRI leases, tenants are not automatically liable for extraordinary repairs. Clear and express wording is required to displace the common law position.

Landlords should ensure that lease drafting accurately reflects the intended allocation of risk. If extraordinary repairs are to be borne by the tenant, that obligation must be clearly articulated. For their part, tenants should carefully review repairing clauses, particularly where terms such as good and substantial repair are used and should inspect the premises at the outset to understand the potential scope of their obligations.

As a general rule, clarity and certainty at the drafting stage reduces the risk of costly disagreement at lease expiry. That is especially true in cases like these.

This article was co-authored by Trainee Mia Ibrahim.

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