How can commercial tenants reduce their dilapidations liability?
Reduce Dilapidations Liability from the Start
Steps taken before entering into a commercial lease and during a lease term can have a significant impact on the dilapidations liability when that lease expires or tenants choose to move to new premises.
To avoid any unpleasant surprises, before entering into a lease, it is always recommended that a schedule of condition is carried out by an experienced dilapidations surveyor to annexe to the lease.
The relevant clauses in the lease must also be referenced to the schedule of condition. Without this protection to benchmark the condition, both the landlord and the tenant will be at risk.
Once occupation of the property is gained, keeping it ‘in repair’ in accordance with the lease requirements is fundamental to limiting the dilapidations liability, during and upon termination of the lease.
It is key to understand an occupier’s repairing responsibility, so that elements, such as roof maintenance are not allowed to become neglected.
Landlords can have the right for interim inspections. If they do they can compel tenants to repair, decorate or reinstate if the lease has not been complied with during the tenancy.
Reinstatement is the removal of alterations which tenants have installed during the lease term. Tenants should therefore be conscious when either fitting out an office space, extending a warehouse or installing a mezzanine floor, that they will be obliged to remove them and make good the building at expiry.
Even if the alterations are an ‘improvement’ in the tenant’s eyes, the landlord will have to consider the occupier market requirements and normally all alterations are required to be reinstated.
Reduce Dilapidations Liability at Lease End
Towards the end of a lease, or if a break clause is being operated, it is prudent to appoint a dilapidations surveyor at least six months prior to the termination, who can advise what the best course of action should be.
While tenants still have possession, they are in a good position - they can either choose to do the dilapidations works (repairs, redecoration and reinstatement) under their own volition following a dilapidations assessment by a surveyor, or begin negotiations with the landlord’s surveyor, following receipt of their ‘terminal schedule’ of dilapidations.
Tenants should not wait for lease expiry (or a ‘final schedule of dilapidations’) and leave the dilapidations claim to be negotiated between surveyors, as they will have lost possession and the opportunity to control the costs of the work.
A tenant’s dilapidations surveyor should always ask the landlord what their intentions are following lease expiry.
If it can be proved that the ‘use’ or demise will change on completion, such as from offices to residential accommodation, then the dilapidations claim will be significantly reduced or in some cases, wiped out.
Surveyors will also look for other ‘supersession’ to limit any claim. They can also advise on obtaining a ‘diminution valuation’ as a useful tool which can provide a cap on the liability.
Reducing Dilapidation Liability Summary
1) Always instruct a schedule of condition prior to entering into the lease.
2) Regular maintenance of the demise should ensure that dilapidations are limited on lease expiry.
3) Maximise your options – appoint a specialist dilapidations surveyor in good time before the lease expires.
4) Do not wait for the lease to expire to negotiate a claim. Your options as a tenant will be limited without possession.
5) Research your landlord’s intentions prior to leasehold expiry – there may not be a claim at all.
Our expert dilapidations team have extensive experience of dealing with all dilapidations matters. We act for both landlords and tenants, ensuring a global approach to the dilapidations process.
See our Dilapidations Fact Sheet for more information.
Also see our recent article on Commercial Lease Repair Obligations.
We assist commercial landlords and tenants on all aspects of lease obligations, repair and dilapidations. We provide specialist surveys, new lease schedules of condition and general dilapidations advice.
BSc (Hons) MRICS