Written by: Ian Harrington on Thursday 12/04/2018
Dilapidations can be a contentious issue between commercial landlords and tenants, with disputes commonly arising at the end of a lease term. Dilapidations are essentially breaches of a lease covenant, and can be a costly issue if tenants fail to understand their liability in this respect.
If a tenant doesn’t meet their obligations as set out in the signed lease, they may become liable for the cost of extensive repairs, plus court costs if the landlord decides to take legal action.
A Schedule of Dilapidations will be sent to a tenant approximately six months before the lease ends, defining all repairs or refurbishment required. Commercial leases contain dilapidations clauses to protect landlords from the cost of repairing damage to their building, or having to reverse cosmetic alterations carried out by the tenant.
So how can both tenants and landlords avoid dilapidations disputes when a lease expires?
Understanding the obligations
To facilitate a smooth exit tenants need to be aware of, and understand, dilapidations clauses within a lease. Prior to signing they should seek advice on the ramifications of failing to meet their obligations, and obtain professional assistance if unsure about any aspect.
It’s also worth noting that, if a clause regarding Interim Schedules of Dilapidations is included, the landlord may send dilapidations schedules at various points during the lease term, in addition to the final schedule six months prior to exit.
Making preparations to repair or refurbish
By preparing to undertake repairs well before the end of the tenancy, both financially and practically, tenants can avoid disagreement with their landlord in respect of dilapidations. It’s advisable to build up a contingency fund throughout the lease term, covering the cost of some or all likely repairs.
In a practical sense, tenants can regularly monitor the state of repair of their building with a view to preventing further decline, whilst also helping to spread the cost.
Seeking help from a chartered surveyor
A chartered surveyor will explain the meaning and implications of any dilapidations clauses, and a tenant’s obligations under their lease. It’s a good idea to prepare a Schedule of Condition (SoC) prior to signing a commercial lease. This should include photographic evidence of the property’s condition before the tenant moves in, and be included with the lease agreement if possible.
Clear and specific lease clauses
To avoid misinterpretation or disputes over dilapidations, landlords should ensure their lease agreements are clear and specific. If a landlord wishes the carpets to be replaced at the end of a tenancy, for example, this should be specifically stated within any dilapidations clauses.
Similarly, if a new tenant wishes to make cosmetic alterations during their tenancy, and the landlord requires these to be reversed when the lease ends, this also needs to be stipulated. Even if only minor cosmetic changes have been made, they require financial input from the landlord to reverse, and can potentially delay a new tenant coming in.
Consider an Interim Schedule of Dilapidations
If landlords fear their tenant may not care for or maintain the property to an acceptable standard, it would be beneficial to issue Interim Schedules of Dilapidations to protect their interests.
The right to issue interim schedules should be included in a lease agreement, stating the ramifications for tenants who breach the lease covenant - a claim for damages that could potentially lead to court action, for instance.
As far as tenants are concerned, careful research and preparation are key to avoiding disputes with their landlord over dilapidations. Landlords also need to ensure their tenants understand the obligations defined in the lease agreement, and make clear the enforcement measures available to them if necessary.
Eddisons can provide further advice on how to avoid dilapidations disputes. Our expert team of chartered surveyors has extensive experience of dilapidations issues, and can work with tenants and property owners to reach a conclusion acceptable to both parties. For more information on mediation or other commercial lease issues, please contact one of the team.