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BLOG: Break Clauses and Dilapidations
We’ve recently posted a few blogs about how to avoid dilapidations claims when leasing a commercial property. Whilst the majority of dilapidations claims are associated with the end of a lease, tenants should also be aware of the potential for dilapidations to be an issue in break clause situations.
Due to the length of commercial property leases, some allow tenants the option to exit a lease early under a break clause. Written into the contract for a specified point in time, for example 5 years into a 10 year lease, many tenants like the flexibility afforded by a break clause. Some tenants may even write a break clause into their business plan – if they have ambitious growth projections, they may enter into a lease with the intention of moving on to larger premises part way through the term.
However, in many circumstances, break clauses are not as straightforward as they may appear. This is because a lease will often specify conditions on a break such as vacant possession, payment of rent and full or material compliance with the repair and decorating covenants (i.e. dilapidations). If a tenant fails to comply with the break conditions, either by way of oversight or misinterpretation, the break clause option will be invalidated.
The risk for the tenant is that if the break clause obligations are not met by the stipulated date, the lease will not end, meaning that the tenant will have to continue to pay rent right until the end of the term.
So what steps should tenants take and how can a Chartered Building Surveyor help?
Understanding your obligations before you enter into a lease is key, as is accurately recording the property’s state of repair at the outset by way of a Schedule of Condition.
Tenants should also plan for repairing obligations in advance of their lease break, should they wish to exercise the break clause. Utilising the services of a Chartered Building Surveyor will help you to interpret what works need to be undertaken to meet the conditions set out in the lease.
If you have been served a Schedule of Dilapidations, a Chartered Building Surveyor will be able to advise on the level of work that needs to be completed to satisfy the landlord. In some circumstances, particularly if you feel the Schedule of Dilapidations has been exaggerated, a Chartered Building Surveyor will be able to negotiate down your liability for repairs.
Developing a proactive approach to managing repairs is in the tenant’s best interests whether they plan to utilise a break clause or not. By either setting aside a sum of money for planned maintenance on an annual basis, or keeping on top of repair works as and when they arise, tenants can avoid a large dilapidations bill and keep their options open regarding their property needs.
For help or advice on dilapidations, whether you’re a landlord or tenant of a commercial property, please contact one of our Chartered Building Surveyors.BACK TO NEWS