The subject of Dilapidations is rarely the most exciting prospect for a business who occupy commercial leasehold premises, especially against current societal and financial challenges facing many UK firms.
Dilapidations is commonly treated as something to ‘think about in the future’…but in reality that future could already be here!
In this blog article, we look at a typical scenario where lease-end dilapidations would apply in respect of an occupational tenant.
Take advice!
Should a tenant find themselves in a position where their landlord serves a Schedule of Dilapidations, the one thing they must not do is choose to ignore it.
A tenant should always seek advice in the first instance to establish their preferred exit strategy and to fully understand and appreciate the landlord’s claim and their likely intentions for the property once the lease expires.
Understand the process…
Claims for dilapidations can be resolved in one of two ways, and sometimes a combination of both. A tenant has an option to undertake any lease-end works themselves or do nothing and negotiate their exit on a monetary basis.
Option 1 – take action…
As a lease expiry date approaches, a tenant is free to carry out any necessary dilapidation’s liability work before the lease term comes to an end, handing back the premises to the landlord in accordance with the lease obligations, normally connected to (i) reinstatement, (ii) repair, (iii) redecoration and (iv) statutory compliance. By this point, the tenant is likely to have already been served with a terminal Schedule of Dilapidations.
This approach allows the tenant to remain in control of the required work and associated costs; but it does raise a few issues.
The first is the impact on business continuity. The dilapidations claim may require a tenant to remove alterations that it carried out to the property during the lease term.
However, these alterations may be fundamental to continued business operations within the premises that the tenant is soon to exit, which could mean them needing to vacate the building before lease expiry. However, sometimes a tenant may have already taken occupation of new premises at this stage – cost permitting.
Option 2 – do nothing…
Once a lease comes to an end and should no lease obligation works have taken place, the right to occupy the premises falls away.
In this situation, the dilapidations claim will normally be settled on a negotiated monetary basis aligned to costs the landlord would incur in doing the work themselves, allowing the landlord to actively remarket the premises and secure a new occupational tenant.
Should a landlord opt to carry out that work, then in addition to the cost of carrying out reinstatement, repair and redecoration works, additional landlord expenses can be legitimate items of claim.
These may include the value of professional fees to manage the works on site and other (legitimate) pecuniary losses that may apply, such as the loss of rent and other expenses; albeit the recovery of such monetary ‘loss’ is never guaranteed and must be clearly demonstrated.
In most cases, a landlord will be able to recover the cost of preparing and serving the schedule from the tenant, usually the lease contains an express clause to this effect.
BAS Property Consultants Ltd can help…
Our team of experienced building surveyors regularly advise commercial tenants on dilapidations matters.
Whether estimating the extent of dilapidations liability for future budgeting or accounting purposes, helping coordinate the necessary lease-end liability work during the lease term, scrutinising a landlord’s claim or negotiating an acceptable monetary settlement using our working knowledge of relevant statute, applicable case law and the Dilapidations Protocol (www.justice.gov.uk).
Whilst this narrative sets out a typical lease-end scenario, it should be noted that several factors can influence the value and overall success of a landlord’s claim for dilapidations, including, a limit on a tenant’s repairing liability from a lease-appended schedule of condition, the landlord’s intentions for the building, the serving of a break notice, the likelihood of supersession and any diminution in the value of the landlords asset – stay tuned for a future blog where these will be discussed in more detail
For more information or help in assessing, planning for and budgeting for future dilapidations liability, please do not hesitate to contact a member of our team for an initial chat.