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Wait before waiving

When a tenant leases equipment from third parties for use in their premises or enters into hire-purchase arrangements, the finance/ leasing companies often ask the landlord to waive their rights over such equipment.  Tenants can put great pressure on landlords to sign waiver letters urgently, claiming that without them they will not be able to take delivery of a vital (and usually very expensive) piece of equipment and that any delay will be detrimental to their business. Although landlords may want to accommodate such requests, they should view these letters with caution.

The main thrust of a waiver letter will be that title in the equipment will not pass to the landlord.  At first glance this seems uncontroversial, but to the extent that the equipment is attached to the building, it may become part of the premises. Without an agreement to the contrary, such equipment will belong to whomever has the right to occupy the building which will be the landlord once the lease expires or is terminated.  Air conditioning plant and lifts are obvious examples of equipment which is attached to a building, but the point may also apply in relation to equipment which needs to be bolted into the structure.

Any acknowledgement that title will not pass to the landlord (and indeed any agreement by the landlord not to take control of the equipment to recover rent arrears) should only, therefore, be agreed by the landlord on condition that the finance/ leasing company has to remove the equipment following the termination of the lease (however that comes about) within a specified period of time.  Until the equipment is removed, the landlord may not be able to relet the premises so if the finance/ leasing company fails to do so, the landlord should have a right to remove, store or dispose of the equipment.  Any proceeds of sale (less removal, storage and disposal costs) will then belong to the finance/ leasing company.  This point is often highly contentious, not least because the equipment may have little or no value once it is removed or because it may need specialist disposal agents to obtain the best price on a sale.

Whilst the lease subsists, it may not be possible for the landlord to grant the finance/ leasing company a right to enter the premises to remove the equipment so any such right should only be agreed in so far as the landlord is lawfully able to do so.

Finally, the finance or leasing company should have an obligation to rectify any damage caused by the entry and removal of goods and any entry should be at their own risk. The finance/ leasing company should also indemnify the landlord against any resulting costs or claims.

Waiver letters are often presented to landlords as “non-negotiable”.  However, it is highly unlikely that the landlord will owe any contractual obligation (in the lease or elsewhere) to the tenant to sign one, so the starting point should be that the landlord will only do so at the tenant’s cost and on terms which it considers satisfactory.  With this in mind, a tenant who requires a landlord’s waiver should raise the issue as early as possible to avoid delays.