Dilapidations at Lease End: How They Can Help You Avoid Expensive Disputes

What are dilapidations?

Dilapidations refer to breaches of lease covenants relating to the repair, maintenance and condition of a commercial property. When you lease commercial premises, your rental agreement typically requires you to maintain the property to a specified standard and return it in proper condition at the end of the tenancy, subject to fair wear and tear.

If you have failed to comply with your repairing covenants during the lease term, the landlord can pursue a claim for the cost of putting right those breaches. Understanding your obligations from the outset and managing them throughout the tenancy helps avoid unexpected costs when you come to vacate the property.

What are my lease obligations?

The extent of your dilapidations liability depends entirely on the terms of your lease. A full repairing and insuring lease places responsibility on the tenant to maintain the entire property, often including the structure and exterior. Internal repairing obligations, on the other hand, limit your responsibility to the interior of the premises.

Beyond repair obligations, many leases include reinstatement covenants. If you have made alterations to the property during your tenancy, you may be required to remove these alterations and return the premises to their original configuration. This can include removing partitions, reinstating flooring and undoing any modifications you made to suit your business operations.

How does the dilapidations process work?

Terminal schedule of dilapidations

At or near the end of your lease, the landlord will typically serve a terminal schedule of dilapidations. This document provides an itemised list of alleged breaches of your lease covenants, with each item described in detail and accompanied by an estimated cost of remedy.

Responding to a schedule

Upon receiving a schedule of dilapidations, you have the right to challenge it. Common grounds for challenging a schedule include:

• Items already in disrepair – Defects that existed when you took the lease
• Betterment claims – Works that would improve the property beyond its original condition
• Supersession – Items the landlord will not actually repair due to planned demolition or refurbishment
• Diminution in value – Claims exceeding the actual reduction in property value

Obtaining professional advice from a qualified building surveyor at this stage is essential. Your surveyor can assess the validity of each claim, prepare a response defending your position and negotiate on your behalf.

Negotiation and settlement

Most dilapidations disputes are resolved through negotiation rather than court proceedings. Both parties' surveyors will typically engage in discussions to agree which items are valid, what works are genuinely necessary and what those works should cost. A negotiated settlement avoids the time, cost and uncertainty of litigation.

Are tenants protected during dilapidation proceedings?

Section 18 of the Landlord and Tenant Act 1927 provides important protection for tenants. This legislation caps the landlord's recovery at the actual reduction in the property's value caused by the breaches. If the landlord can demonstrate that the breaches have reduced the property's value by £100,000, that is the maximum they can recover, even if the cost of carrying out repairs would be £150,000.

How can I avoid common dilapidations disputes?

Disputes frequently arise over the interpretation of "repair" versus "renewal". Your lease requires you to repair the property, but not to provide the landlord with something better than they had before. Fair wear and tear is another common area of disagreement, as normal deterioration from ordinary use over time is not your responsibility.

Clear documentation throughout your tenancy provides the best protection. Obtain proper consents for alterations in writing, keep records of repairs and maintenance carried out and document the property's condition at key points. This evidence becomes invaluable if disputes arise at lease end.

The importance of early preparation

Tenants who begin planning for lease end 12-18 months in advance typically achieve significantly better outcomes than those who wait until after vacating to address dilapidations.

Commissioning your own assessment before the landlord serves their schedule allows you to identify likely claims and address them proactively. Carrying out necessary repairs during your occupancy is often more cost-effective than paying the landlord to do so after you leave.

Early engagement also provides time for proper negotiation rather than rushed discussions under pressure.

Get expert dilapidations advice

Our experienced building consultancy team provides comprehensive dilapidations services for both landlords and tenants. We understand commercial lease obligations, conduct thorough property assessments and negotiate effectively to achieve fair settlements.

Whether you are approaching lease end and need to understand your obligations or have received a schedule of dilapidations that requires a response, our RICS-qualified surveyors can guide you through the process. Call our team on 0113 243 0101 or complete the form below to arrange a consultation.