Nick Miles, Associate Director at Whitefox Chartered Surveyors explores a common tenant’s question and often misunderstood aspect of a commercial landlord’s lease-end claim for dilapidations

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The subject of Dilapidations is rarely the most exciting or pressing matter for a business who occupy leasehold premises, especially against current societal and economic challenges facing many UK firms.

Dilapidations is commonly treated as something to ‘think about in the future’… but that future could already be here!

In this summary article, we look at a typical lease-end scenario where dilapidations 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.

• Understanding the process:

Claims for dilapidations can be resolved in one of two ways, and sometimes a combination of both.

As lease expiry approaches, a tenant is free to carry out any necessary dilapidation’s liability works before the term comes to an end, handing back the premises in compliance with the lease obligations.

This option allows a tenant to remain in control of the required work and associated lease-end 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.

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 scenario, the dilapidations claim will commonly 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.

• Whitefox can help:

Our team of experienced building surveyors can advise any commercial tenant 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 the above 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 future articles where these will be discussed in more detail!

For more information or help in assessing, planning for and budgeting for future dilapidations liability, then please do not hesitate to get in touch with:

Nick Miles @ Whitefox – Chartered Surveyors

. BSc (Hons) MRICS, Associate Director

. Chartered Building Surveyor