All too often, dilapidations are only considered at the very end of a lease or even after the tenant has vacated the property.
This rarely has a positive outcome for either the landlord or the tenant, as we explore below.
Not all landlords take a proactive approach to dilapidations in the course of a lease term, which often means a tenant will often mean upkeep is poorly managed and defects going unrepaired.
Where dilapidations are only investigated at a late stage before or on a tenant’s exit, the landlord can be left with a building in disrepair, poor condition and unsuitable for the market. This can create long voids in tenancy, along with increased marketing fees, for which the costs may not be fully recoverable.
A terminal dilapidations claim can quickly mount to several thousands of pounds; a cost that many businesses are taken by surprise with. Tenants exiting a commercial property are usually either doing so because the business can no longer afford the cost of the lease or they are looking to move to new premises. In the former case, the business would be unlikely to be able to afford the cost of a large dilapidations claim, and in the latter, there will likely be significant costs involved in refurbishing and moving to new premises, with dilapidations costs being unwelcome.
Whilst it can be easy to ignore defects with a leased property, doing so will only usually lead to greater costs of repair down the line.
Tenants that take the precaution of having a schedule of condition prepared at the start of a lease would have some degree of comeback on a dilapidations claim as their obligations would only extend to restoring the property to the previous state of repair. However, if the condition and décor had been allowed to deteriorate over the course of the lease, which is most often the case, there would likely still be significant costs involved.
What’s the solution?
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.
Landlords should ideally undertake a preliminary Schedule of Dilapidations 6 – 12 months before lease expiry or immediately after a tenant serves notice. This allows an early understanding between both landlord and tenant as to what is expected and gives the tenant time to instigate early discussions and/or complete works prior to the end of the lease.
Landlords may also be wise to keep a regular check on the condition of their properties and / or exercise their right to undertake an interim schedule of dilapidations (if the lease allows this).
Tenants would be advised to have a planned preventative maintenance programme in place to proactively manage and spread the cost of upkeep. At the very least, tenants should take early action on any issues where damage could escalate.
Lea Hough are specialists in acting on behalf of both landlords and tenants in relation to dilapidations issues. Our Building Surveying team also work closely with our landlord and tenant clients to ensure good repair is maintained in commercial properties to try and avoid contentious dilapidations claims following exits from leases.
For more information, please contact us.