Why you need to manage dilapidations properly

Les Pickford

Freelance writer and former Editor of the RICS Construction Journal (RICS)

Dilapidations is a specific area of law relating to breaches of a tenant’s lease obligations or covenants. A dilapidations claim can be made by the landlord against the tenant during or towards the end of a lease, or after the lease has ended.

Gillian_Murray_130217_HH

Our top five dilapidations tips

The landlord’s claim document - usually called a Schedule of Dilapidations - will contain references to breaches of the tenant’s lease obligations, mainly relating to physical alterations and their reinstatement, redecoration and repair. The amount claimed can often be more than the cost of 12 months’ rent.

If you don’t understand your lease obligations, your surveyor and solicitor can provide help and your surveyor can help you manage how to comply with them.

Gillian Murray MRICS is an Associate Director with Savills Building Consultancy. Here she provides her expert advice on dealing with dilapidations and how to deal with a landlord’s claim.

When should you start thinking about dilapidations?

Subtleties in lease clause wording can significantly affect your liabilities, so start thinking about dilapidations when you first start looking at a property and are discussing heads of terms with your prospective landlord.

Be clear about what you are taking on and who is going to be responsible for what areas under the lease. For example, if you need a ground floor shop and basement storage area, make sure your lease does not make you responsible for the whole building, if that is not what you want.

A Schedule of Condition can be a useful way of limiting your liability under a lease. Knowing a property’s condition from the start will also help stop you from signing a lease that states it’s in good condition, when it actually isn’t.

Once you have committed to a property, safely keep records of everything from the start of the lease negotiations to the executed lease documents to help resolve any disputes at the end of the lease.

Good maintenance and facilities management during your occupation of the property will help minimise your end of lease liabilities.

The impact of alterations

If you intend to alter or fit-out the property, be sure to follow the lease procedures as you might require written permission from the landlord. And at the end of the lease, you might not have to remove alterations if the landlord does not request their removal.

The landlord’s claim

A Schedule of Dilapidations served by your landlord or its professional advisor will usually contain an itemised list of alleged lease breaches together with suggested remedies and (often, but not always) associated costs. Take advice from a surveyor experienced in dilapidations as soon as you receive a claim as you should respond to it in a timely manner.

Your dilapidations surveyor will assess your property and prepare an itemised response to the landlord’s claim on your behalf, as well as offering you strategic advice on managing the dilapidations process. Should you do the works? How long will they take? What is the likely disruption to business operations? Would a cash settlement be better? Is the landlord required to prove loss under the lease?

A solicitor’s input might be required if there are legal defences to the claim available to you. The legal systems in England & Wales, Scotland and Northern Ireland take different approaches to dilapidations and knowledge of these can aid your defence.

Negotiations

During the negotiation of the claim, your building surveyor will apply their understanding of the lease to your premises and will put together technical arguments to reduce the claim. There are many other tactics to support your defence and your building surveyor will discuss appropriate ones to use depending on the circumstances of the landlord’s claim, for example:

  • in a ‘tenant’s market’ where the supply of properties outweighs the demand, your landlord is likely to want you to renew/extend your lease and your surveyor and agent can use this to your advantage
  • your agent’s market knowledge can inform your defence if your landlord seeks to claim loss of rent as part of the claim
  • if the landlord has not complied with its obligations in terms of giving notice, e.g. serving the claim, or requiring you to reinstate, etc, then your solicitor and surveyor will work together to use this to your advantage
  • sometimes the landlord has to demonstrate loss to prove a claim. If its evidence of loss is that the value of the property is less because of your lease breaches, your building surveyor and valuation surveyor will be able to advise further. 

If you can’t reach an agreement with your landlord, there are a number of dispute resolution options available, including the RICS Dispute Resolution Service, so check what your lease says about disputes.

Top 5 tips

  1. Think about dilapidations before you sign your lease and, having taken advice, budget accordingly and realistically.
  2. When a draft lease is presented to you, ask your professional advisors for advice and interpretation if you do not understand the terms drafted. 
  3. Be aware that subtle differences in wording can have major implications in terms of liability. 
  4. Keep on top of your maintenance and statutory obligations throughout the lease.
  5. Before the last year or so of your lease, take professional advice to help you manage the dilapidations process efficiently and cost-effectively. Expert advice can make the whole process much less painful.
Small Business Property Guide web 

View our Small Business Property Guide for more advice on common decisions and actions you may need to take when managing a small business – from acquiring a lease to challenging a dilapidations claim – along with vital property-related issues such as valuations, planning permission and the business rates system.

Though comprehensive, it is no substitute for the in-depth knowledge and advice a professional surveyor can provide. Find a surveyor in your area

Comments (0)

Only Registered Members and Registered site users can comment on our content.

Please use the log in button to sign in and leave your comment.


Read the next page in this section