Almost all leases of commercial property will have some sort of liability for the tenant to keep up with maintenance, repair and condition of the property. As such, issues around dilapidations are not uncommon.
Here we provide a guide to dilapidations and what both landlords and tenants of commercial properties need to know.
What does dilapidations mean?
According to the RICS, ‘Dilapidations refers to breaches of lease covenants that relate to the condition of a property during the term of the tenancy or when the lease ends.’
For a dilapidations claim to be issued, a Schedule of Dilapidations must first be carried out. This sets out any outstanding reinstatement, repair, legal compliance and decoration items to the property, and is usually completed approaching the end of the lease term.
It should be noted that, although most common at the end of leases (terminal Schedules of Dilapidations), some leases also allow for Interim Schedules of Dilapidations to take place.
What are the main considerations around dilapidations?
Protection from potential dilapidations claims can begin prior to the lease commencing with the completion of a Schedule of Condition. This report is completed by a Chartered Surveyor and involves descriptions and photographic evidence of a property’s condition. Importantly, it identifies any pre-existing defects so that these can be excluded from the tenant’s dilapidations liability later down the line.
Dilapidations not only covers repair, maintenance and redecoration, it can also extend to any alterations made to the property. Therefore, where a tenant undertakes alterations during a lease, the landlord may be entitled to serve a notice to reinstate the alternations. In the event that the tenant does not complete dilapidations work before the end of the lease term, the landlord can claim damages in the form of a ‘Dilapidations Claim’ or Quantified Demand.
As a general rule, a landlord has about 56 days after the end of the lease to issue a Schedule of Dilapidations and a Quantified Demand. The tenant can then respond with their own report, known as a Scott Schedule, to try to defend the claim.
Under the Dilapidations Protocol, there are a number of rules around the losses that can be justifiably claimed under dilapidations.
There is usually a degree of negotiation between the two parties, often managed by each party’s Chartered Surveyors. There are a number of potential outcomes possible, including the tenant undertaking some of the works at their own cost (before the end of the lease), or the parties reaching an agreement for a settlement figure. Where an agreement cannot be reached, and the dilapidations claim remains in dispute, it may ultimately mean that the matter goes to court. However, it is usually in the interests of both parties to reach a settlement before that stage.
A proactive approach to dilapidations is beneficial to both landlords and tenants, allowing the costs to keeping the property in good repair to be managed throughout the course of the tenancy and the landlord getting back a property in a good state of repair at the point the tenant vacates.
Contact a Chartered Building Surveyor
Advice from experienced Chartered Surveyors can help at every stage of the process. For more information or to speak to one of our Chartered Building Surveyors in relation to a dilapidations matter, please get in touch.
