Does a sub-tenant have to contribute to a sinking fund?

Naomi Wilson, Director and Solicitor in Astle Paterson’s Commercial Department discusses the recent case of Balkhi Southern Land Securities Ltd [2016] where the Property Chamber considered whether a sub-tenant must contribute to a sinking fund.

Naomi explained “In this case the owner of the commercial land, ‘A’, had let it to another, ‘B’.  B had in turn sub-let the land to another business, ‘C.’

In the lease between A and B, B was liable to contribute toward a sinking fund – an amount of money set aside to cover major work which may be needed on the property in the future.

In the sub-lease between B and C, C was required to pay to B an “appropriate proportion” being 20.04% of the “total expenditure” payable by the B to A by way of service charge and subsequently B invoiced C for a proportion of the contributions B had paid toward a sinking fund.

Over time A started to ask for more and more money from B for the sinking fund – and in turn, B asked C to pay 20.04% of the same.

Due to the escalating costs, C ultimately refused to pay to B the requested sums and B took the matter to the Property Chamber.”

Naomi continued, “The Upper Tribunal of the Property Chamber decided in the case that whilst C was ultimately liable to contribute towards the sinking fund under the sub-lease, C should only pay a “reasonable sum” – and it was for B to seek evidence from A that the amount being charged for the sinking fund was reasonable in the circumstances.

B was not permitted to simply pass A’s charge onto C for payment without making sure that the amount charged by A was reasonable.”

Naomi concluded, “Commercial Leases are technical documents in which the wording of each individual clause can affect your rights and responsibilities for a considerable amount of time.

At Astle Paterson we have a specialist Commercial Department who deal with Commercial Leases on a daily basis.

We are best placed to assist both Landlords and Tenants in all aspects of Commercial Property transactions.”

Should you be in the process of obtaining, granting or renewing a Lease on a Commercial Premises please contact Naomi in Astle Paterson’s Commercial Department on 01283 531366 or by email to nwilson@astlepaterson.co.uk