To maintain or not to maintain? Dilapidations of M&E Services

The condition of plant and services is such a significant issue at lease end.  Very often the visual condition of the equipment provides only part of the story on the overall condition, its reliability and future life expectancy. 

Whilst it is quite permissable at the end of a lease for plant to be approaching the end of its design life, and indeed may even have exceeded the usual replacement date, as long as it is in repair and is reasonably reliable, a Tenant would probably have discharged its obligations under most repairing covenants.  This poses a problem for Landlords having to accept back old plant and equipment which is inefficient, worn and unattractive to new Tenants.

This issue is often compounded by poor maintenance during the term (or no maintenance except for the reactive repair when things break down).  Some leases require the Tenant to regularly service plant and equipment using an approved maintenance contractor during the term, and give the Landlord the right to see evidence that this is done.  Usually the detail of the maintenance operations to be undertaken is lacking, and often Landlords don’t bother to check what is being done to prolong the longevity of the equipment.

What are the remedies available to Landlords who believe their Tenants are failing to maintain plant and services in accordance with lease covenants, and about to yield up plant which has a big question mark hanging over it?

  1. Check the requirements of the lease and make sure there is a specific covenant requiring the Tenant to maintain equipment or to enter into a regular maintenance contract.
  2. Request details of historic maintenance activities and identify any shortfalls in the maintenance regime employed by the Tenant.
  3. Request details of any condition reports prepared by the Maintenance Contractor together with any recommendations for work which would fall outside of the maintenance contract.
  4. Ask for details of equipment failures and logged call-outs to identify potential problem areas in the past.
  5. Request details of test certificates covering mechanical and electrical services, including any required by statute.

If the information collected from the enquiries above is incomplete or suggests issues may exist with the equipment, further investigation may be warranted.  This could take the form of a detailed survey of each component making up the system, together with testing of its operation through its full operational range.

It may also be necessary to take water samples of wet systems (heating and air conditioning systems in particular) for laboratory analysis to identify levels of corrosion deposits, satisfactory levels of inhibitor and anti-freeze and inclusion of other elements which ought not to be present in well-maintained systems.  These tests can also provide evidence to highlight any operational issues such as poor circulation, often caused by blocked strainers and seized controls.

Tenants who fail to adequately maintain systems during the term, leading to a demonstrable reduction in condition and operation at lease end run the risk of a claim for any losses which arise from their breach of contract.