15 Apr Dilapidations – Landlords and Tenants Beware
If you have a commercial interest in property, Dilapidations is likely to affect you. Dilapidations primarily relates to the disrepair of a commercial property at the end of a lease. This arises as a result of a tenant not meeting their repairing obligations under their lease which can include obligations to reinstate alterations, redecorate and comply with statutory requirements.
A common repairing liability requires tenants “to put and keep” the property in repair. It is important that both landlords and tenants fully understand the implications and liabilities under a lease before commencement to reduce the risk of additional or unbudgeted costs when the lease expires.
At the end of a lease the landlord will serve a Terminal Schedule of Dilapidations, which details whether there have been any breaches of the lease in relation to the tenant’s repair, reinstatement and decoration obligations.
If the tenant does not remedy the breaches prior to the termination of the lease, surveyors acting for both parties will then negotiate to determine the amount payable to the landlord as the deemed loss. This can often be a lengthy process, sometimes requiring legal action.
One way to simplify this process and avoid doubt between surveyors is for a Schedule of Condition to be prepared before commencement, which is then appended to the lease. This would record the condition of the premises prior to the incoming tenant’s occupation with an associated lease clause, requiring the tenant to keep and deliver back the premises at lease expiry in no better condition than recorded in the schedule.
Depending on the intentions of both parties, the exact limits of the tenants repairing obligations can be detailed in the lease, with reference to the Schedule of Condition. For example this may include; keeping the property in no better repair than evidenced in the Schedule of Condition, but to redecorate every three years and remove all floor coverings at the end of the lease.
A Schedule of Condition is also a useful tool, if the repairing obligations of the lease are not limited. The schedule can be used by the negotiating surveyors to determine the alterations that the tenant has made during the lease term, leading to more straightforward and more cost effective negotiations.
The Schedule of Condition must be prepared by a surveyor with both descriptive text and good quality photographs of all areas of the premises. The document must then be signed by both parties to confirm that it provides an accurate representation of the current condition of the premises.
It is important to note that Dilapidations claims are not always applicable if there is no deemed loss to the value of the property or if the landlord intends to demolish or extensively refurbish the property following the end of the lease.
With the above considered, it is important for landlords and tenants to have a full understanding of the lease that they are entering into and plan for dilapidations costs throughout the term.
It is recommended that advice is sought before a lease is entered into and a dilapidations liability assessment is undertaken during occupation of commercial premises. This will advise tenants of their obligations and suggest works that could be undertaken during the lease to reduce the size of the claim at lease expiry.
For more information about dilapidations and condition surveys and how Ward Williams Associates can assist both landlords and tenants, please contact:
Laura Jones, Senior Building Surveyor