A permanent waive – Still a bad idea!

Friday 9 January 2015

Much like the hairstyle of choice for the ‘80s, a hastily signed waiver letter by a Landlord may seem like a good idea at the time but, with the benefit of hindsight, could prove itself to be a regrettable mistake.

It’s a common enough situation; a Tenant is expecting the arrival of machinery or equipment, crucial to the running of its business. A delivery date has been fixed and the Tenant realises that it is obliged, under the terms of its lease or hire-purchase agreement, to obtain a waiver from its Landlord to the effect that the Landlord will forgo any rights it has over the equipment once installed in the premises.

Many a Landlord would willingly sign a waiver. After all, why should it take issue with equipment in which it has no proprietary interest and that will likely improve the business of its rent paying Tenant? A new goods lift perhaps, or maybe a ventilation system? Indeed, a Tenant may present the waiver as essential and non-negotiable, adding further pressure to the situation.

No problem so far, but what about years down the line? Consider, by way of an example, the lease of the premises ending. The Tenant has long gone, leaving the building still with a dilapidated industrial ventilation system in place; one to which the Landlord has hastily waived all its rights. Anything attached to a building may now have become part of the premises and the responsibility of the party with the right to occupy the premises (i.e. the Landlord). The Landlord cannot re-let the premises with the system in situ but has absolutely no right to deal with the equipment and remove it. Certainly, the finance or lease-hire company could remove the equipment, but it’s now, say, 15 years old and out of date. The second hand value is near nothing and it is simply not worth the company removing.

So the Landlord is stuck! Even if it gets the consent of the finance or leasing company to deal with the equipment, the cost of removal and expert disposal may far outstrip any second hand or scrap value. The Landlord may then even have to account to the finance or leasing company for any proceeds of sale, depending on the circumstances.

Waiver letters are for the benefit of the finance or leasing company and the Tenant, and should therefore only be signed by the Landlord with the consideration of what can be done if the responsibility for the equipment ultimately passes to it with the premises. The Landlord may also wish to seek formal legal advice.

Conditions for giving a waiver that the Landlord may wish to include are:

• its costs in entering into the waiver are met by the Tenant;
• following termination of the lease, an obligation on a finance or leasing company to remove the equipment, within a certain timeframe, at their own risk and cost;
• (if the lease is still ongoing), the right, so far as the Landlord is able to grant the same, for the finance or leasing company to enter the premises to remove the equipment;
• an obligation for the company removing the equipment to reinstate any damage caused to the premises at its own cost;
• the right for the Landlord to remove and dispose of the equipment, should the finance or leasing company fail or refuse to remove the equipment as agreed; and
• an obligation by the finance or leasing company and Tenant to indemnify the Landlord against any costs, claims damage or losses pursuant to the waiver.