Executive Summary
- Most commercial property leases will contain clauses covering obligations for the tenant to; keep the building repair, carry out decorations and comply with statutes.
- At the end of the lease the landlord will make a claim against the tenant who breaches these obligations — this is known as a claim for dilapidations.
- One of the best protections against a claim for dilapidations is to agree a schedule of condition at the beginning of the lease.
- At the end of the lease negotiations over a claim for dilapidations can be complex and require specialist advice.
- The key to success in any claim for dilapidations at the end of the lease is to plan ahead.
For the foreseeable future, leasehold as opposed to Freehold, will be the dominant form by which businesses occupy commercial premises in this country.
Whilst this has many advantages to both landlord and tenant, the standard institutional lease is not without its problems. In the view of Signal Surveyors, the most common problem originates from the complexity contained within most leases. Thus it is very often that whilst a business will understand its own market extremely well, they are often naive and poorly advised when it comes to signing up a new lease or getting the best out of an existing lease. Similarly landlords often do not understand the commercial imperatives that drive businesses and fail to plan accordingly.
Signal surveyors have worked with both landlords and tenants and have focused our services to provide that missing information to enable the best possible deal to be achieved, be it for the landlord or tenant.
As set out earlier, most leases are extremely complex and in this short section we intend to concentrate on what are known as the repairing, yielding up and alterations clauses which will be contained in the majority of modern leases. This subject is collectively known as dilapidations.
Most leases will oblige the tenant to keep the building in repair and by implication that means if the building is not in repair to start with, then the tenant will have carry out the repairs and keep it that way. The best protection any tenant can have against this obligation is to carry out a building survey prior to occupation and negotiate a rent-free to cover the cost of repair. However this is not always possible particularly when the number of properties available are limited. Consequently Signal Surveyors would suggest that a schedule of condition is the best way of protecting the tenant against onerous repairing obligations to a building which is either not in repair to start with, or by its nature will require extensive repairs during the lease (for example a listed building). Bear in mind that a schedule of condition will reduce the landlords investment value and if the lease is to be a long one, it might be preferable to try negotiating an increased rent-free period to put the building in repair rather than obtain a schedule of condition.
For the landlord the schedule of condition is not necessarily all to do with protecting the tenant’s interest. A carefully worded and constructed schedule of condition will set out what is required at the end of the lease and removes much of the debate that can take place over Dilapidations issues.
The real crunch happens at the end of the lease when the landlord puts together a schedule setting out why the tenant has not complied with their lease and will demand damages often known as dilapidations. This can be very expensive and a rule of thumb would be a claim based on £10 per square foot for warehouses and £25 per square foot for air-conditioned offices. Please bear in mind these are rule of thumb figures and clearly each case should be judged on its merits.
There is not enough time or space on this website to go into the detailed nuances of negotiating a dilapidations claim but hopefully the following will be sufficient to set out the key strategies that should be adopted by both landlords and tenants;
Tenants
- Plan in advance. The moment the lease ends, you have no right to go in the building and carry out any repairs. The initiative will pass to the landlord.
- Carrying out the work including repairs, removing alterations and complying with other lease clause is far cheaper if you do the work yourself. Carrying out the work under your control during the lease term is the single most effective method of reducing the dilapidations bill.
- If you are forced into a cash settlement use time wisely. The landlord is facing empty property rates and is probably short of cash to carry out the refurbishment.
If you are faced with a dilapidations claim, or wish to make a claim against your tenant (or even subtenant) Please do not base your strategy on the brief summary above. Each case is individual and whilst the strategies above hold true for the majority of cases, there are always subtle considerations to take into account.
Over the years, Signal Surveyors have acquired a wealth of experience and excellent track record in the field of dilapidations and we can provide the benefit of this experience to our clients at a very reasonable cost. We would be delighted to hear from you.
