Avoiding the pitfalls of dilapidation

As a commercial tenant, when you come to the end of the lease on your property, the landlord will be expecting the property to be returned in the same condition as when you originally signed the lease. This is covered under what is known as dilapidation – that is the point in a contract relating to the state of the property and the process to rectify this.

Firstly, be prepared

Before signing the lease in the first place, make sure you know what you are signing up to. Find out exactly what the lease terms and dilapidations implications are. If you’re not sure, get a chartered building surveyor or a solicitor to take you through the clauses.

In addition to this, photographing the space you are leasing means that you now have evidence of the condition of the space prior to signing, which can be attached to the lease. This will be useful in case of any latter dispute.

Prior to signing the lease, you should also detail any work you wish to undertake in a schedule to attach to the lease – although this will usually be covered the landlord requiring to grant a licence to alter in any case.

Finally, it may be possible to agree in advance a fixed sum that you agree to pay for dilapidations at the time the lease is signed.

Remain prepared

During the lease, tenants should keep an eye on any potential dilapidation liability and budget for that obligation.

Any alterations to the premises will usually be requested by the landlord to be reversed at the end of the lease – something to make provision for.

Preparing for the end

As mentioned, the landlord is entitled to receive the property back in the same condition that it was let to the tenant at the beginning of the lease. This has to be completed by the last date of the lease – essentially when you shut the door and hand over the keys.

Schedule of dilapidation

If you haven’t completed all building work set out in the lease, you should expect to receive a Schedule of Dilapidation, which will set out what is required to be undertaken and the costs involved. If you have made any alterations to the property during your lease, your landlord may serve you with a notice to reinstate the alterations you have made.

Although costs look quite daunting, you will enter a period of negotiations where you can:

  • Confirm the details of works by appointing your own surveyor to quantify the schedule, to review the works outlined and see if the scope does describe the works accurately required. (It may be that the landlord has made a mistake and over or under costed for the works required)
  • Undertake the works yourself and obtain landlord approval for the works
  • Negotiate with the landlord to pay a reduced amount

Quantified demands

If you do not complete the dilapidation works before the end of the lease term, then your landlord can claim damages from you. This is a Quantified Demand which would be sent out 56 days after the end of the lease. Because landlords should not profit from dilapidation payments, a Quantified Demand may actually be less than that of the schedule.

Although disptes about costs arise, these are usually resolved before heading to court.

One simple rule

Although it sounds daunting, there is one simple rule – be prepared. Get a trusted surveyor, acceptable contractor and solicitor, know what you are signing and know what restorations to the property are needed.

To find out more

If you would like to find out more about how we can help develop your dream office space, give us a ring on 020 8405 0555 or send us a message.