Landlords beware! Be alert to tenants’ reinstatement covenants on lease expiry

When consenting to tenants’ works, landlords commonly obtain tenants’ covenants to reinstate the works at the end of the term. On lease expiry the landlord must be alert to the existence and terms of such reinstatement covenants. This applies even where the landlord intends to grant a renewal lease.  It could be costly if the landlord allows reinstatement covenants to fall away.

A tenant may obtain several licences for alterations during the term of a lease. These could be for initial fitting out works, minor changes or, perhaps, significant refurbishment. 

Most licences for alterations include tenants’ covenants to reinstate the premises to their condition before execution of the works. Typically, reinstatement is at the tenant’s expense. It must be carried out in a good and workmanlike manner, to the landlord’s reasonable satisfaction.

Some reinstatement covenants are unconditional. The tenant must reinstate during, say, the three months before the end of the term. Here, the landlord can relax and need do nothing further.

Sometimes the tenant must reinstate unless the landlord serves notice to the contrary within a specified period.   Sometimes reinstatement is triggered only by the landlord serving notice requiring it. Clearly, the landlord must be alert where it must take positive steps to prevent or oblige reinstatement.

It is vital to consider reinstatement covenants on lease renewal.  It would be absurd if the tenant had to reinstate works before taking up a renewal lease. However, these obligations will fall away on expiry unless the landlord includes fresh covenants in the renewal lease to reinstate the works authorised by existing licences on expiry of the second lease. Failure to do so could be costly.

A prudent landlord should record the terms of all reinstatement covenants and diarise key dates.  This will allow the landlord to consider its requirements and could prevent costly loss of reinstatement rights.