Dilapidations: A Guide For Office Landlords and Tenants

Office dilapidations can be time-consuming and stressful for landlords and tenants, but they needn’t be. With the right preparation and advice, bringing an office lease to an end can be a seamless process for both parties. 

We’ve produced this step-by-step guide to managing dilapidations for tenants and landlords to guide you through the process. We also explain what dilapidations in commercial leases are and explore your office lease-end obligations.

What are dilapidations in commercial leases?

Dilapidations refer to a tenant’s failure to comply with lease obligations relating to the repair, maintenance or reinstatement of a commercial property, usually identified at the end of the lease term. 

Depending on the requirements of the lease, the tenant is typically obliged to return the property to the condition it was when the lease began. That usually involves:

• Repairs - Tenants are responsible for making good any damage or disrepair to the property’s interior and systems (such as heating and plumbing). That may extend to the structure and exterior of the property, depending on the terms of the lease. 
• Redecoration - Some leases require tenants to redecorate the property at the end of the lease before returning it to the landlord. The landlord may have approval over the colours and finishes used.
• Alterations and reinstatement - It’s relatively common for tenants to modify an office to suit their needs. If they do, they will usually have to undo the alterations and return the premises to the condition stipulated by the lease.
• Removal of personal property - You will also have to remove any personal fittings, such as company signage and other items, at the end of the lease. 

If tenants do not meet these obligations, they breach the terms of their lease. The landlord can then bring a dilapidations claim to recover the costs involved in returning the property to a ‘good and tenantable’ condition, which is often the condition stipulated by the lease.

UK dilapidations explained: The views of landlords and tenants

Landlords and tenants have very different perspectives on dilapidations. Landlords want to make sure their offices are returned in the condition described in the lease so they can find a new tenant quickly and avoid void periods.

Tenants can be surprised by dilapidations claims from landlords. They often view them as an unnecessary or unwelcome cost and seek to reduce or avoid them wherever possible. Tenants should always challenge costs they believe to be excessive, but they cannot ignore their lease-end obligations.  

Despite their differing perspectives, it’s in both parties’ interests to avoid a legal dispute. Disputes can be time-consuming and costly, which is why both parties should approach dilapidations proactively with an openness to communicate and a willingness to negotiate a resolution.

An office landlord’s guide to dilapidations

Landlords should act early to ensure their property is returned in the condition required by the lease. This step-by-step guide outlines the key actions landlords should take throughout the dilapidations process.

Step 1: Make the necessary preparations

The process typically begins in the final year of the lease. Landlords should use this time to inspect the property and review the lease terms to ensure they are clear on the tenant’s obligations. 

Many leases require landlords to give tenants notice to make repairs and reinstate alterations. That gives the tenant time to carry out the works themselves. A specialist dilapidations surveyor can inspect the property and serve notice in the form and timeframe stipulated in the lease.

Step 2: Prepare a Schedule of Dilapidations

After inspecting the property, the dilapidations surveyor will produce a schedule of dilapidations that lists the breaches against the lease. Schedules of Dilapidations can come in the form of:

• Interim schedules - can be used where disrepair is discovered during the lease to prompt the tenant to carry out the work.
• End-of-lease or exit schedules - to inform tenants of the work they need to carry out to meet the terms of their lease before they vacate or after the lease has ended. 

The Schedule of Dilapidations should include items of disrepair, the lease clauses breached, the repair work and alterations required and the estimated cost of the work.

Step 3: Serve the schedule

The next step is to serve the Schedule of Dilapidations on the tenant. The landlord must give the tenant enough time to respond, negotiate or carry out the repairs. 

At this point, the tenant will often instruct their own surveyor to advise them. Their surveyor can negotiate directly with your own surveyor to resolve the outstanding repairs, whether it’s through the tenant doing the work themselves or by agreeing on a financial settlement.

Step 4: Make a Quantified Demand

After serving the Schedule of Dilapidations, you (or your surveyor) can issue a Quantified Demand, which sets out the cost of the alleged breaches and the total compensation you are seeking. It can also include expenses such as loss of rent and the costs of surveyors.

Step 5: Negotiate with the tenant

The tenant will respond to the Quantified Demand, usually with the help of their surveyor. Dilapidations claims can be contentious, and the two parties may not immediately agree on the cost or scope of the works. 

If you cannot reach a settlement, you can use Alternative Dispute Resolution methods, such as mediation, adjudication or the RICS Dilapidations Scheme. That’s typically far quicker and more cost-effective than taking legal action.

A tenant’s guide to dilapidations

A tenant’s responsibilities for office repairs differ from lease to lease. That’s why, firstly, you must be clear about your office lease-end obligations, and seek clarity from a dilapidations surveyor if you’re unsure.

Step 1: Start early

Dilapidations claims can come as an unpleasant surprise to tenants who haven’t prepared or budgeted for them. That’s why it’s advisable to start your preparations early to limit your exposure. You can do that by:

• Negotiating a Schedule of Condition at the start of the lease to limit your repair obligations and/or negotiate a cap on your dilapidations liability
• Inspect the property regularly and keep it well-maintained during the lease
• Seek advice from a dilapidations surveyor and take steps to repair the property and remove alterations before the lease comes to an end  
• Be aware that you may still have to comply with dilapidations obligations if you exercise a break clause in the lease

Step 2: Keep records throughout the tenancy

You should also keep detailed records of the property’s condition throughout the tenancy. That includes landlord communications and inspections, and details of any repairs, maintenance or alterations you carry out.

Step 3: The Schedule of Dilapidations

As the end of your lease approaches, the landlord will usually appoint a surveyor to inspect the property. You will typically receive a Schedule of Dilapidations before or shortly after the lease expires that outlines any repair and reinstatement breaches. 

You may also receive a Quantified Demand, which is a formal claim for money that sets out the total cost of the repairs, including professional fees.

Step 4: Review and respond

Being served with a dilapidations claim can be daunting. However, it’s worth noting that they are usually negotiable and many settle at well below the landlord’s opening figure. 

The key here is to seek early advice from your dilapidations surveyors and engage with the landlord at your earliest opportunity. Your surveyor will review the lease and conduct their own assessment of the repairs required, along with the costs, and challenge or negotiate the claim.

Step 5: Negotiate

Based on your surveyor’s findings, the reasonableness of the landlord’s costs and whether the claimed breaches are valid under your lease, you can then start the process of negotiating the claim down. Your options include:

• Completing some or all of the repair work yourself if you have time before the lease expires
• Negotiating a compromise based on the reasonableness of the landlord’s claims
• Paying a settlement sum so the landlord can carry out the works

Need help with your office lease-end obligations?

At Eddisons, we offer a broad range of office property services to handle every aspect of your property and lease. That includes expert advice and practical support for landlords and tenants from our experienced dilapidations surveyors. Please get in touch to discuss your dilapidations obligations or any other dilapidations challenges with our team.