Do your due diligence! The importance of making appropriate enquiries before entering into a lease

It’s important for a tenant to understand its obligations on returning a premises to the landlord at the end of the term, before completion of the lease.

The yielding up clause deals with this obligation and typically provides that a tenant has to return the premises in a good repair and condition, or otherwise in accordance with its obligations under the lease.

The case of Pullman Food Ltd v The Welsh Ministers and another [2020] EWHC 2521 (TCC) considered how the tenant’s yielding up obligation applied to the presence of asbestos, which had been left buried across the premises on term expiry and whether this amounted to a breach by the tenant of its yielding up obligations.

The yield up covenant in the lease required the tenant to return the premises “in a good and substantial repair and condition”.

The Court held that the presence of asbestos containing materials across the site, meant that the site was left in disrepair and its removal would be required to comply with the tenant’s yielding up covenant.

Although it was noted that the asbestos had most likely been brought on to the site as a result of tenant works, it was held that the tenant would have been in breach even if the asbestos had been present before the lease had been completed.

The Court also highlighted that the use of the word ‘condition’ in the yielding up provision, demonstrated that the obligation was capable of extending to carrying out works that went beyond repair.

This case highlights the importance for a tenant to undertake environmental due diligence, prior to completing a lease to establish the presence of any contamination or hazardous materials, particularly where older buildings are involved.

If enquiries reveal any type of contamination at the premises, then exclusion clauses can be incorporated into the documentation to limit this liability falling to the tenant.

-Alisha Khinda 

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