We have updated this note to reflect the new statutory guidance on contaminated land.
This practice note looks at the issues that need to be considered when drafting and negotiating a clause in a commercial lease that requires a tenant to comply with laws.
The following abbreviated terms are used in this note:
The purpose of a compliance with laws clause is to:
Shift responsibility for all statutory compliance to the tenant, where possible.
Remind the tenant of its responsibility to comply with statute.
Evidence the landlord's and tenant's intentions as to who is responsible for statutory compliance, in order that the court will have regard to this when apportioning the cost of compliance (Monro v Lord Burghclere  1 KB 291).
Give the landlord a direct right of action against the tenant for breach of covenant, provided the statute in question does not contain cost apportionment provisions (see note, Statutory apportionment provisions).
The landlord might:
forfeit the lease to bring an end to the unlawful use;
claim in damages, if the landlord has suffered any loss as a result of the tenant's breach.
Many statutes impose obligations on property owners, occupiers or both. Some of these statutes will also:
Specify whether the primary compliance obligation is on the owner or the occupier.
Give the court the power to apportion the cost of compliance between those having an interest in the property.
State that the court may have regard to the terms of the lease (which would include the compliance with laws clause) when deciding what would be a just and equitable cost apportionment between the landlord and tenant.
If a statute contains a mechanism for the court to apportion the cost of compliance, that is the only means by which the statutory compliance obligation can be passed to another person (Barraclough v Brown  AC 615). The landlord can only use the statutory apportionment machinery and cannot sue the tenant under the compliance with laws clause (Horner v Franklin  1 KB 479; Stuckey v Hooke  2 KB 20).
The compliance with laws clause should be read in conjunction with:
The rent review provisions (if any) (see note, Rent review provisions).
The tenant's indemnity covenant (see note, Tenant's indemnity covenant).
The tenant's repair, alterations and user covenants. A compliance with laws clause will bolster such covenants to make it clear that the tenant must, for example:
comply with the CDM Regulations when carrying out works to the demised property;
ensure its use of the demised property is permitted under planning law.
A market rent review clause will commonly:
Assume that no work has been carried out to the demised property that has diminished its rental value.
Disregard any tenant's improvements that are not carried out pursuant to an obligation to the landlord.
If the tenant is obliged by law to carry out works that:
Diminish the value of the property, an assumption that there has been no diminution in the rental value is arguably unfair to the tenant.
Improve the value of the property, those improvements should be disregarded on review even though the works are carried out pursuant to the compliance with laws clause. Otherwise, the tenant would be both paying for the works and paying an increased rent on account of the works.
The Standard clause, Market rent review clause (www.practicallaw.com/7-382-7037) contains wording to deal with both of these points.
Leases often contain a tenant's covenant to indemnify the landlord, for breach of covenant and for the tenant's acts or omissions. For an example, see Standard document, Lease of whole: Indemnity (www.practicallaw.com/6-107-5020) and for more information, see Practice note, Leases: Indemnity (www.practicallaw.com/8-386-5496).
An indemnity covenant will extend the tenant's obligation from a promise to comply with laws, to an obligation to indemnify the landlord for non-compliance.
Most leases require the tenant to comply with all "laws", which should be defined somewhere in the lease. The definition of "laws" is likely to be in the interpretation clause (see, for example, Standard document, Lease of whole: Interpretation (www.practicallaw.com/6-107-5020)) or the compliance with laws clause itself. The definition will usually include:
Primary and secondary legislation and any associated codes of practice or guidance.
Directly-applicable supra-national laws (for an overview of the status of different types of EU legislation, see Practice note, The European Union after the Treaty of Lisbon: Forms of EU legislation (www.practicallaw.com/2-381-1190)).
All laws in force for the time being. This extends the obligation to one of compliance with any new laws that come into force during the term of the lease.
The compliance with laws clause usually provides that the tenant will:
Comply with laws relating to:
the demised property and its use and occupation by the tenant;
service media and plant in the demised property;
any works being carried out at the demised property; and
any materials kept at, or disposed from, the demised property.
Carry out all work required by statute.
Relay to the landlord copies of notices received and comply with any such notices.
A landlord might not insist on a compliance with laws clause for a very short term lease.
Otherwise, the tenant should consider amending the compliance with laws clause to:
Restrict the tenant's compliance obligation to those statutory obligations governing only the tenant's use and occupation of the demised property.
Make it clear, particularly in the case of a short term lease, that the clause does not oblige the tenant to incur any capital expenditure or improve the property. This amendment should be coupled with:
a landlord's covenant to comply with laws that require capital expenditure or improvements to the property; and
an amendment to the service charge provisions, to carve out such expenditure or the costs of such improvements.
Although not necessary, a compliance with laws clause often also includes reference to a number of specific statutes. The justification for this is to:
Draw the tenant's attention to specific examples of what the landlord may regard as particularly important pieces of legislation.
Add additional obligations to the statutory ones.
The following is a list of statutory obligations that are commonly specifically referred to:
This is by no means an exhaustive list and when drafting and negotiating a lease, the parties and their advisers need to consider particular laws that will apply to the particular property because of the tenant's proposed use, such as:
Alcohol and food licences.
Water and drainage licences.
Applications for planning permission.
Anyone can make an application for planning permission in respect of any land or buildings. However, an applicant who is not the owner or sole owner of the land must give notice of the application to the owners and to any relevant agricultural tenant (article 6, GDPO 1995 or article 11, DMPO 2010). When determining the planning application, the LPA must take into account any representations made by the persons notified (article 19, GDPO 1995 or article 28, DMPO 2010).
A compliance with laws clause may contain an additional provision prohibiting the tenant from applying for planning permission without the landlord's consent.
If the lease does not contain such a clause, the tenant could apply for planning permission without the landlord's consent, but must give notice of the application to the landlord. The landlord could then make representations to the LPA, if it objected to the grant of planning permission.
Failure to comply with planning law.
If the tenant fails to comply with planning law, enforcement action can be taken against both the tenant and the landlord. A failure to comply with enforcement action constitutes a criminal offence (section 179, TCPA 1990).
For further information, see Practice note, Breach of planning control: planning enforcement notices (www.practicallaw.com/8-385-4978).
Failure to comply with Building Regulations.
The Building Regulations (currently contained in Building Regulations 2010 (www.practicallaw.com/9-503-2888)) apply to most building projects. The Building Regulations aim to ensure the health and safety of people in and around buildings. If a person carrying out building work contravenes the Building Regulations, the local authority may do each, or any, of the following:
prosecute the person contravening the Building Regulations; and/or
serve an enforcement notice on the owner, requiring the removal or alteration of the work; and/or
apply for an injunction.
If the tenant is carrying out the building works, then the tenant will have primary responsibility for compliance with Building Regulations. However, an enforcement notice can be served on the landlord, as owner of the building. The enforcement notice will give the landlord 28 days to carry out the required work, failing which the local authority can carry out the work at the landlord's cost.
Even if a local authority does not prosecute or take enforcement action, it will not issue a completion certificate to confirm compliance with the Building Regulations. This may cause the landlord problems when it comes to sell the property.
For further information, see Practices notes:
The general obligation to comply with laws seeks to transfer all responsibility to the tenant. This will not, however, prevent enforcement action being taken against the landlord for a tenant's breach of planning law or Building Regulations.
The compliance with laws clause will often specifically prohibit the tenant from applying for planning permission without the landlord's consent. The landlord will generally prefer to prevent the tenant from making an application, as the LPA may grant planning permission if the proposal accords with the development plan even if the landlord has objected.
There are many reasons why a landlord will want to retain control over planning applications. The details are beyond the scope of this note but briefly:
The landlord may have specific plans that would be adversely affected by the tenant's application.
The tenant's planning permission may reduce the value of the landlord's interest in the property.
The tenant's planning permission may have repercussions after the term of the lease.
The landlord will want to ensure that the tenant assumes liability for any Community Infrastructure Levy that may be payable in connection with the development. For more information, see Practice note, Planning Act 2008: Community Infrastructure Levy: an overview: Who is liable to pay CIL? (www.practicallaw.com/6-385-1570).
The ability of a tenant to apply for planning permission needs to reflect the rights of the tenant to change use and carry out alterations, where planning permission would be needed in those cases. For example, if the user clause in the lease permits the tenant to use the demised property as "offices within Use Class A2 or B1 of the Town and Country Planning (Use Classes) Order 1987", the tenant will want the freedom to be able to apply for planning permission to change the use from A2 to B1, without the landlord's consent.
The tenant may want to limit the obligation to comply with the planning permission to only the tenant's occupation and use of the demised property.
The tenant will not want to assume responsibility for any outstanding conditions attached to a planning permission obtained by the landlord.
For information on the CDM Regulations and their effect on a lease transaction, see Practice notes:
The CDM Regulations apply to all construction projects, including alterations, fitting out, renovation and repair, redecoration and maintenance. There is no exclusion for small projects.
There are additional duties under the CDM Regulations for notifiable projects. Nearly all commercial projects will be notifiable.
Where a tenant carries out a construction project at the property, the tenant may have duties under the CDM Regulations:
To keep and maintain the health and safety file.
As a client.
Under part 4 of the CDM Regulations, which deals with duties relating to health and safety on construction sites.
As a designer.
The landlord may also have duties under the CDM Regulations in respect of the tenant's construction project, in the following circumstances:
For multi-let buildings, the landlord may prefer to keep the health and safety file and make it available for the tenant's inspection.
The landlord may also be a "client" under the CDM Regulations. This could happen where, for example, a tenant appoints a landlord to carry out additional works to a new building that the tenant intends to occupy.
The landlord must comply with part 4 of the CDM Regulations if, and to the extent, it exercises control over the tenant's works.
The landlord may also be a "designer" under the CDM Regulations. This could happen where, for example, the landlord specifies the materials to be used by the tenant.
For more information, see Practice notes, CDM 2007: Transactions Issues (www.practicallaw.com/6-242-4966) and Construction (Design and Management) Regulations 2007 (CDM 2007) (www.practicallaw.com/0-207-2306).
In addition to the general obligation, the compliance with laws clause will often specifically require the tenant to:
Comply with its obligations under the CDM Regulations. This draws the tenant's attention to the CDM Regulations and gives the landlord a direct right of action against the tenant for breach of covenant if the tenant fails to comply.
Many landlords feel that it is worth having a specific provision dealing with the CDM Regulations as, for example, the cost to the landlord of recreating the health and safety file in respect of the tenant's works may be disproportionately expensive, compared to what compliance would have cost the tenant.
Supply information to the landlord, to enable the landlord to comply with its obligations under the CDM Regulations.
For additional optional clauses relating to the CDM Regulations, see Standard document, Licence to carry out works: The CDM Regulations (www.practicallaw.com/1-101-3845) and related Drafting note, Licence to carry out works: drafting notes: The CDM Regulations: clause 5 (www.practicallaw.com/2-107-4348).
The compliance with laws clause may also specify who is responsible for keeping and maintaining the health and safety file. Normally:
For single-let properties, the health and safety file is kept by the tenant. The compliance with laws clause will require the tenant to:
keep the health and safety file available for inspection by the landlord;
maintain the health and safety file properly in accordance with the CDM Regulations; and
deliver the health and safety file to the landlord on the expiry of the lease.
For multi-let buildings, the landlord will normally keep the health and safety file. The compliance with laws clause will require the tenant to supply all information necessary to enable the landlord to keep the health and safety file up to date.
Under the DPA 1972, where a landlord has an express or implied right to enter premises to carry out works of repair or maintenance, the landlord may, in certain circumstances, owe a duty to all those who might reasonably be expected to be affected by defects in the state of the premises (see Practice note, Leases: Breach of repair and maintenance obligations: Section 4 of the Defective Premises Act 1972 (www.practicallaw.com/6-386-5497)).
If the defect arises from the tenant's default, the landlord will not be liable to the tenant, but it will be liable to others (section 4(4), DPA 1972).
The compliance with laws clause will not absolve the landlord from its statutory liabilities but will typically include a covenant by the tenant to:
Notify the landlord of any defect that may give rise to the landlord being liable under the DPA 1972. Apart from the obvious benefit of the landlord having notice of a defect, if the tenant is under an obligation to notify and does not do so, then there may be a risk for the tenant that any damages that it might be able to claim from the landlord, will be reduced.
Indemnify the landlord against any liability under the DPA 1972 if the defect arises from the tenant's failure to repair (or failure to notify the landlord that there is a problem).
The tenant may want to negotiate so that it is only required to give notice to the landlord on actually becoming aware of the defect. The tenant may not want to have to carry out regular checks of the property or pay for them to be carried out.
Most properties are covered by the requirements of the RRO 2005, subject to certain exceptions. The RRO 2005 applies both to buildings (occupied and vacant) and to external areas. For details of the main fire safety duties imposed by the RRO 2005, see Practice note, Regulatory Reform (Fire Safety) Order 2005: Fire safety duties (www.practicallaw.com/4-202-0117).
The "responsible person" and any person with fire safety duties (under article 5(3), RRO 2005) are primarily responsible for compliance with the RRO 2005. "Responsible person" is defined as:
In relation to a workplace, the employer, if the workplace is to any extent under his control (employer with control).
If there is no employer, the person who has control of the premises, as occupier or otherwise, in connection with the carrying on by him of a trade, business or other undertaking, whether or not for profit (business with control).
Otherwise, the owner.
(Article 3, RRO 2005).
"Owner" means the person receiving the rack rent, or who would receive rack rent if the premises were let on that basis (article 2, RRO 2005).
Any person who has control of the premises (so far as this extends to matters covered by the fire safety duties under the RRO 2005) is also obliged to comply with the duties under articles 8 to 22 and any regulations made under article 24 (article 5(3), RRO 2005). That person's liability:
Runs in parallel to that of the responsible person.
Is limited to matters within that person's control.
For some properties, there may be more than one person with duties under the RRO 2005. Exactly how responsibilities should be allocated in these circumstances is not made clear by the RRO 2005 or the fire safety guidance issued by the Department of Communities and Local Government (DCLG). The position appears to be:
For single-let properties, subject to a full repairing and insuring lease, the responsible person will be the tenant (either as employer with control or business with control).
For multi-let buildings:
each tenant may be the responsible person for its own unit;
the landlord will be responsible for any retained parts, vacant units and communal areas; and
the landlord and its tenants will be required to co-ordinate the fire safety measures each is taking and co-operate with each other.
The general obligation will help to demonstrate that the tenant is responsible for fire safety at the demised property. However, although the general obligation gives an indication, other factors may be relevant (see Practice note, Regulatory Reform (Fire Safety) Order 2005: Allocation of responsibilities (www.practicallaw.com/4-202-0117)).
The general obligation will not enable the landlord to compel the tenant to carry out specific works, unless a notice has been served by the enforcing authority that requires particular works to be done at the property.
For this reason, the lease may impose a specific tenant's covenant in relation to fire safety measures that obliges the tenant to comply with the requirements and recommendations of the insurers and the reasonable requirements of the landlord. The covenant may form part of the compliance with laws clause or the insurance clause. The objective of any such covenant would be to ensure that the tenant behaves responsibly to preserve the property and not to increase the buildings insurance premium.
If the tenant is required to comply with requirements and recommendations of insurers, it should make sure that its liability is dependent on seeing a copy of the insurance policy and written confirmation of any additional requirements and recommendations.
Broadly, the smoking ban applies to properties that are open to the public or used as a place of work (section 2, HA 2006). It is a criminal offence:
To smoke in a smoke-free place (section 7(2), HA 2006).
For a person who controls or is concerned in the management of smoke-free premises, to fail to stop people smoking in a smoke-free place (section 8(4), HA 2006).
For a person who occupies or is concerned in the management of smoke-free premises, to fail to display the requisite no-smoking signs (section 6(5), HA 2006).
Anyone who controls or is concerned in the management of smoke-free premises must also develop procedures and train staff on how to deal with anyone smoking on the premises.
The tenant is (and, arguably, the landlord might also be) a person that "controls or is concerned in the management of smoke-free premises".
For further information, see Practice note, Smoke-free premises (www.practicallaw.com/4-364-5010).
The general obligation seeks to transfer all responsibility to the tenant. If the landlord is prosecuted, the compliance with laws clause may support the landlord's defence that it was reasonable for the landlord to assume the property was smoke free and correctly signed.
The compliance with laws clause gives the landlord a right of action against the tenant, if the tenant fails to comply with the HA 2006.
The COMAH regime applies to any business that manufactures, stores or uses any dangerous substances in amounts exceeding the threshold quantities set out in the COMAH Regulations. The regime applies mainly to the chemical and petrochemical industries, and fuel storage and distribution. It may also apply to other activities, such as the storage of gas, large warehouses and distribution facilities and the manufacture and storage of explosives.
For the requirements applicable to COMAH sites, see Practice note, Buncefield explosion: COMAH regime: impact of Buncefield (www.practicallaw.com/7-384-5017).
The compliance with laws clause gives the landlord a right of action against the tenant, if the tenant fails to comply with the COMAH regime.
Liability for the remediation of contaminated land rests:
In the first instance, on those who caused or knowingly permitted the contamination (Class A persons).
If no Class A person can be found, liability passes to the current owners and occupiers of the site, regardless of whether they were aware of the contamination (Class B persons).
"Remediation" is not limited to clean-up; it includes investigation, mitigation and monitoring of contamination. It is important to note that the contaminated land regime focuses on remediation to a standard suitable for current use (while the planning regime focuses on remediation to a standard suitable for future use).
The issue of contamination cannot be ignored in cases where the let property does not extend to any structural parts since the tenant could have liability in relation to those parts by virtue of the service charge clause.
Complex rules on the exclusion and apportionment of liability apply. These are set out in the Contaminated Land Guidance.
For further information, see Practice notes:
For single-let properties, if the landlord and tenant are both liable for remediation and have agreed how liability should be allocated between themselves, either the LA or the EA will be obliged to give effect to that agreement, rather than apply the rules on exclusion and allocation of liability. This is known as an "agreement on liabilities" (paragraphs 7.29 and 7.30, Contaminated Land Guidance).
The general obligation in the compliance with laws clause could, therefore, be wide enough to make the tenant responsible for remedying any contamination problems.
For multi-let buildings, a remediation notice relating to a site as a whole would (except in exceptional circumstances) be served on the landlord. However, the service charge provisions may oblige the tenant to contribute to the cost of repairs to the structure and the landlord's costs of complying with legislation.
The general obligation means that the tenant must comply with all the regulations about safe storage and disposal of contaminants (insofar as relevant to the tenant's use).
If the tenant did cause contamination (which includes creating a pathway between contaminants and receptors), a remediation notice would, generally, be served on it (rather than the landlord) in the first instance.
Remediating contaminated land can be very expensive. Arguably this should be the landlord's responsibility, particularly if the tenant's due diligence reveals any past contamination or the lease is for a short term or low rent. However, the tenant may create the pathway, for example, by excavation on site or drainage from the site.
The statutory guidance includes a test for excluding a Class B person whose only interest in the land is as a tenant and who is paying a rack rent (paragraphs 7.76 to 7.79, Contaminated Land Guidance ). However, this exclusion test will not be applied if it would leave no Class B persons.
Therefore, if contaminated land is an issue, additional express covenants and specialist advice may be needed. For example:
A tenant may want to add an express exclusion of liability for any costs of remediation in relation to historic contamination and a warranty from the landlord that there is no contamination. This would need to apply to the tenant's covenants as a whole.
Both parties may require rights of access, intrusive investigation and monitoring and an indemnity, if one party is found to have caused or added to the contamination of the other's land.
The landlord may require additional rights enabling it to step in and clean up substances in on or under the demised property, or to take action to prevent the demised property acting as a pathway.
The EPB Regulations 2007 introduced a regime of energy performance certificates (EPCs), display energy certificates (DECs) and compulsory air-conditioning inspections. In summary:
EPCs and recommendations for improvement of the energy performance of the building must be produced whenever a building is constructed, sold or rented out. The duty is on the developer, seller or landlord.
A tenant is not under a duty to produce an EPC unless it assigns or sublets.
DECs are to be displayed in larger buildings occupied by public authorities and by institutions providing public services to a large number of people (relevant institution).
A tenant is not under a duty to display a DEC unless it is an occupying public authority or relevant institution.
Air-conditioning systems with an output of more than 12kW must be inspected at regular intervals.
A tenant is not under a duty to arrange an inspection unless it has control of the operation of the air-conditioning system.
Anyone who has an interest in the building, or is in occupation of the building, is under a duty to:
Co-operate with the landlord to allow the landlord to comply with the duty to prepare an EPC and recommendation report.
Allow an energy assessor access where it is reasonably necessary for the purposes of preparing an EPC and recommendation report.
(Regulation 50, EPB Regulations 2007).
For general information on EPCs, see Practice note, Energy performance certificates (www.practicallaw.com/3-259-4960).
The general obligation seeks to transfer all responsibility to the tenant.
It is not clear from the EPB Regulations 2007 whether a landlord, selling its interest, could use the compliance with laws clause to require a tenant to obtain an EPC on the landlord's behalf. However, good practice guidance published by the Lease Code steering group recommends that the landlord should pay for the EPC in this circumstance. For more information, see:
The tenant should make sure that it is not liable for any matters arising other than from its use and occupation of the demised property.
Regulation 4 of the CAR 2012 imposes obligations (Regulation 4 duties) on the "dutyholder" (who may or may not be an employer) to:
Determine whether asbestos is present in a building, or is likely to be present.
Manage any asbestos that is or is likely to be present. This involves assessing the risk and putting action plans and systems in place for managing the risk
"Dutyholder" is defined in regulation 4(1) of the CAR 20012 as:
"(a) every person who has, by virtue of a contract or tenancy, an obligation of any extent in relation to the maintenance or repair of non-domestic premises or any means of access thereto or egress therefrom; or
(b) in relation to any part of non-domestic premises where there is no such contract or tenancy, every person who has, to any extent, control of that part of those non-domestic premises or any means of access thereto or egress therefrom."
This means that a wide range of people have regulation 4 duties, including all owners of non-domestic property, landlords, tenants, licensees, and, potentially, managing agents.
For example, the following will be dutyholders, and may be so concurrently in relation to a particular property:
A landlord who retains some obligation to maintain or repair (for example, the structure) or has the power to carry out maintenance work if the tenant defaults, and to forfeit the lease. Although the primary responsibility may rest with the tenant, the landlord will remain a dutyholder alongside the tenant.
The landlord would also have to step in and carry out work in the event of the tenant's default. The landlord will become the primary dutyholder on a forfeiture or surrender, and on the expiry of the term of the lease, however determined.
A tenant who leases all or part of the demised property to undertenants, but still has liabilities under its lease to maintain or repair. Although the primary responsibility may rest with the occupying undertenant, the tenant will remain a dutyholder alongside the occupier and the landlord.
For further information and examples, see Practice note, Control of Asbestos: Identifying the "dutyholder" under Regulation 4 (www.practicallaw.com/7-107-4906).
Where there is more than one dutyholder, the relative contributions to be made by each in complying with the regulation 4 duties, are determined by the "nature and extent of the maintenance and repair obligations" owed by each dutyholder (regulation 4(1), CAR 2012).
There is also a duty on "every person" to co-operate with the dutyholder "so far as necessary to enable the dutyholder to comply" with its duties (regulation 4(2), CAR 2012). The landlord and the tenant will each want a copy of each other's record of assessment and written plan.
Regulations 5 to 24 of the CAR 2012 impose additional duties on employers and their employees. See Practice note, Control of Asbestos: Duties on employers and employees (www.practicallaw.com/7-107-4906).
Although the landlord will continue to be a dutyholder, the general obligation gives the landlord a direct right of action against the tenant, if the tenant fails to comply with the duty to co-operate.
A prospective tenant will want to see, and have continuing access to, the landlord's:
Record of assessment in respect of the building as a whole, and the demised property.
Written plan for managing asbestos.
For further information, see Practice note, Control of Asbestos: If you are acting on the grant or taking of a new lease of non-domestic premises, what information should the landlord give or be asked to give in relation to asbestos? (www.practicallaw.com/7-107-4906)
Service providers must comply with the duty in the Equality Act 2010 to make reasonable adjustments so that a disabled person is not put at a substantial disadvantage in accessing the service (section 29(7) and Schedule 2, Equality Act 2010). For more information see Practice note, Equality Act 2010: implications for property: Making reasonable adjustments when providing services to the public (www.practicallaw.com/5-502-4847).
If the tenant is a service provider, such as a bank, shop or restaurant, the tenant must comply with these provisions of the Equality Act 2010.
The general obligation seeks to place all responsibility for compliance with the tenant.
The landlord should be wary of including a more specific covenant that requires the tenant to make physical adjustments to remove or alter features, as this could be an onerous covenant that would have a negative impact on rent review.