The landlord will want you to give a covenant in the lease to comply with any future laws. The covenant might also require you to carry out any works necessary to comply with any such laws.
The first thing to be aware of is that there are situations where you may indeed have to carry out works to comply with laws. For example, there are obligations to make premises fit for disabled people by making physical changes to the workplace, like installing a ramp for a wheelchair user or an audio-visual fire alarm for a deaf person. Future laws may impose obligations which are costly to carry out.
Statutes which may be relevant include Town & Country Planning Acts, Health & Safety Acts, Environmental Protection Acts, and Disability Discrimination Acts. A surveyor can advise you.
… the benefit of the works could be “rentalised” – made into extra rent – by the landlords at the rent review.
If future laws require you to do works, you won’t be able to avoid that. But there is an additional hidden danger that you might end up paying twice if there is a future rent review. You would pay once for the works themselves. But the landlord might also get more rent from you at the rent review because you have improved the premises.
To explain this, I first need to take a short digression to explain how rent reviews work. The rent to be paid as a result of a rent review is assessed as the rent a prospective tenant would pay in the open market for the premises.
The first question which has to be asked is: “what premises?” At the start of the tenancy, maybe five years ago, the premises might have been in shell condition. Before the tenants moved in they spent many thousands of pounds fitting out and dressing up the premises ready for occupation. So, when the question “what premises?” is asked, the answer should be: “the premises as they were in shell condition when we signed the lease, not the opulent premises which exist today.” The reason is that the tenants have already paid once for the works; they shouldn’t have to pay for them again by paying rent assessed for the fully fitted out premises.
To give effect to this distinction, the rent review clause in the lease should say that works which the tenants carry out for themselves – and not as an obligation to the landlord – are disregarded when it comes to the rent review.
The other side of the coin is that sometimes, the tenants get the premises cheap to start with because they are dilapidated; and part of the deal with the landlords is that the tenants undertake to bring them up to good condition. Since this is an obligation to the landlord, the works are not disregarded in the rent review – for the good reason that really it was the landlords who paid for the works by the discount in rent they gave the tenants so that they would undertake the works which the landlords wanted.
You see the distinction. Works the tenants do for their own purpose – like fitting out a shop – are disregarded at rent review. Works the tenant does under an obligation to the landlord – like carrying out initial repairs required by the lease – are not disregarded.
This now brings us back to the question of possible costly works that might be required by future legislation.
The danger to you is that because the covenant you give in the lease to comply with any future legislation is a covenant with the landlord, it is an obligation to the landlords. Under the principles I have just explained, that would mean that the benefit of the works could be “rentalised” – made into extra rent – by the landlords at the rent review. In other words, since the works improve the premises because they now comply with the law, where previously they didn’t, the rent a prospective tenant would pay in the open market is higher, and you have to pay it.
You should ensure that the lease is worded so that works needed to comply with future legislation are expressly disregarded at future rent reviews. You should remind your solicitor of this risk if there are to be any rent reviews in the lease you are taking.
They should also check the repairing obligations generally to make sure that they don’t imply an element of improvement.