A new or newly refurbished building looks like a low risk choice for a tenant. In practice, defects in new construction often take two or three years to show, and a standard Scottish full repairing lease puts the cost of fixing them on the occupier. This guide explains how to limit that exposure when you negotiate the lease, and how to make sure someone else pays if the building turns out to be faulty.
In brief
- Most Scottish commercial leases exclude the landlord’s common law repairing duties and make the tenant responsible for everything, including defects that existed before it moved in.
- The main protections are limiting what the tenant must repair, excluding latent and inherent defects, a schedule of condition and caps on service charge contributions.
- A tenant usually has no direct claim against the builder or design team for defects in a building it does not own. Collateral warranties or third party rights fill that gap.
- Claims are subject to a five year prescriptive period, which now generally runs from when you knew or should have known of the loss, with a 20 year long stop.
- These points must be negotiated before the lease is signed. Once you have agreed full repairing terms, it is very hard to row back.
Why new buildings carry repair risk
Under Scots common law, a landlord must provide premises that are wind and watertight and reasonably fit for the purpose of the let, and must carry out major repairs. Almost every commercial lease contracts out of these duties. The tenant agrees to keep the premises in good and substantial repair and condition, and often to renew or rebuild them, whatever the cause of the problem.
That wording catches defects in design, materials and workmanship as well as ordinary wear and tear. If a roof membrane fails, cladding needs to be replaced or a heating system was badly installed, the tenant may have to pay, even though it played no part in the construction. In a multi-let building, the same costs can come through the service charge.
| Type of defect | Example | Who pays under a standard full repairing lease |
|---|---|---|
| Patent defect | Visible cracking or water staining at the date of entry | Tenant, unless excluded or covered by a schedule of condition |
| Latent defect | Poor workmanship hidden behind finishes that appears later | Tenant |
| Inherent defect | A design or specification error, such as an undersized drainage system | Tenant |
| Wear and tear | Worn carpets, decoration, plant reaching the end of its life | Tenant |
Limiting the repairing obligation
There are several ways to bring the obligation back to something fair. They can be combined, and the right mix depends on the age and condition of the building, the length of the lease and how much of the building you occupy.
Exclude latent and inherent defects
The most important protection in a new building is an express exclusion for defects arising from the original design, construction or refurbishment. The landlord should remain responsible for putting these right, ideally at its own cost rather than through the service charge. Check the definition carefully: it should cover design, materials and workmanship and should not be limited to defects notified within a short period.
Use a schedule of condition
A photographic schedule of condition, prepared by a surveyor and attached to the lease, records the state of the premises at entry. The tenant’s obligation is then limited to keeping the premises in no better condition than shown in the schedule. This is especially useful in refurbished buildings where some elements are new and others are not.
Take on internal repair only
In a multi-let building, a tenant of part should usually be responsible only for the internal parts of its own premises. The structure, roof, foundations and common parts should be the landlord’s responsibility, with costs recovered fairly through the service charge.
Limit the obligation to repair
Resist wording that requires you to renew, rebuild or improve. A simple obligation to keep the premises in good repair, excluding damage by insured risks, is far less onerous.
Service charges in multi-let buildings
Even with a tight repairing clause, defect costs can return through the service charge. Ask for the following exclusions and controls:
- no recovery of the cost of putting right original construction or refurbishment defects;
- no recovery of capital improvements or the replacement of major plant within an agreed number of years;
- a cap on the service charge for the first years of the lease, or an annual percentage cap;
- the landlord to pursue the contractor or design team first, using its own warranties and the defects liability period, before charging tenants;
- a fair apportionment method and access to budgets, accounts and supporting invoices.
The RICS Professional Statement on service charges in commercial property, which applies to RICS members across the UK, is a useful benchmark when negotiating.
Collateral warranties and third party rights
A tenant has no contract with the building contractor, architect or engineers. Scots law also limits claims in delict for pure economic loss, so if the building is defective a tenant usually cannot sue those parties directly. Two tools give it a route to recover its losses.
Collateral warranties
A collateral warranty is a separate contract in which the contractor or a consultant confirms to the tenant that it has complied with its building contract or appointment. If it has not, the tenant can claim against it. Collateral warranties are usually only offered to a tenant taking a substantial part of the building or a long lease, so ask for them early, ideally at heads of terms stage.
Third party rights
Since 26 February 2018, the Contract (Third Party Rights) (Scotland) Act 2017 has allowed a building contract or appointment to give enforceable rights directly to named or described third parties, such as future tenants. This avoids having to sign separate warranties for every occupier, which is useful in multi-let schemes.
Whichever route is used, check that the warranting party carries adequate professional indemnity insurance, that liability caps and net contribution clauses are reasonable, and that the warranty can be assigned if you assign the lease. If the building is still being built under a pre-let agreement, you should also have a say in the specification and any changes, and the right to inspect before completion. Our construction dispute solicitors can advise if a defect has already appeared.
Time limits for defect claims
Claims for breach of contract, including under a collateral warranty, are subject to the five year short negative prescription in the Prescription and Limitation (Scotland) Act 1973. Since 1 June 2022, the five years generally start when you knew, or could with reasonable diligence have known, that you had suffered loss, that it was caused by an act or omission, and who was responsible. A 20 year long stop applies, running from the date of the breach.
Building contracts also include a defects liability or rectification period, often 12 months after completion, during which the contractor must return to fix defects. Make sure defects are reported within that period, and ask the landlord to commit to enforcing it.
At the end of the lease
When the lease ends, the landlord will usually serve a schedule of dilapidations. In Scotland there is no statutory cap equivalent to the English rule that limits a dilapidations claim to the reduction in value of the landlord’s interest, and the courts have accepted claims based on the cost of the works. That makes the protections agreed at the start of the lease even more valuable: a schedule of condition and a latent defects exclusion are your evidence that certain items were never your responsibility.
For a wider look at lease terms, see our guide to commercial leases in Scotland. If a dilapidations claim is already in dispute, our landlord and tenant disputes team can help.
Negotiation checklist
- Commission a survey. Even a new building should be inspected, and the surveyor can prepare the schedule of condition.
- Exclude defects. Ask for an express exclusion of latent and inherent defects from the repairing obligation and the service charge.
- Narrow the repair clause. Internal repair only in a multi-let building, and no obligation to renew or improve.
- Control the service charge. Agree caps, exclusions and a duty on the landlord to pursue the contractor first.
- Ask for warranties. Collateral warranties or third party rights from the contractor and key consultants, with assignment rights.
- Diarise dates. The end of the defects liability period, and key dates for raising claims.
Frequently asked questions
Is a new building covered by a guarantee?
The contractor will usually be obliged to fix defects reported during the defects liability period, often 12 months. After that, recourse depends on the building contract, any warranties and the prescriptive period. A tenant can only benefit if it has a warranty, third party rights or a lease clause that makes the landlord responsible.
What is the difference between a latent and an inherent defect?
A latent defect is hidden and would not have been found on a reasonable inspection, such as poor workmanship behind a finish. An inherent defect is built into the design or specification. Good lease wording excludes both.
Will a landlord agree to exclude defects?
For a new or newly refurbished building, it is a common request and landlords often accept it, particularly where they hold warranties from the contractor themselves. Your bargaining position is strongest before heads of terms are agreed.
Do I need collateral warranties for a small unit?
They are less often offered for small units on short leases. In that case, a defects exclusion and a schedule of condition do most of the work.
Leasing a new or refurbished building?
Our commercial property solicitors negotiate repairing, service charge and warranty terms for occupiers across Scotland, so you only pay for what you should. Call 0141 471 9166 or book a free consultation.
Related services and guides
This guide reflects Scots law as at October 2026. It is general information rather than legal advice, so please speak to us about your own lease or building.