Dilapidations are a common source of landlord-tenant disputes, and one aspect of a commercial lease that can come as a nasty surprise for tenants. That’s particularly true in retail, where tenants are often required to do extensive work or pay a substantial landlord claim to return the property to its original condition when their lease comes to an end.
In this article, we aim to prepare tenants for retail dilapidations by explaining what they are, when they arise and how you can approach them to avoid costly claims.
What are commercial lease dilapidations?
Just about every commercial lease includes an obligation to return the property in a specific state of repair when the lease term comes to an end. Usually, the tenant has to return the premises in the same condition as when the lease began. If the tenant does not fulfil that obligation, the landlord can make a dilapidations claim, which is essentially a bill for the cost of putting things right.
Towards the end of the lease, the landlord can issue a Schedule of Dilapidations, detailing the repairs and maintenance required to bring the property back to its agreed-upon condition. Tenants can carry out the remedial works, dispute the claim or negotiate a financial settlement with the landlord.
Learn how to avoid disputes about dilapidations
Common examples of retail dilapidations
Retail is an industry where end-of-lease dilapidations claims are common. That’s due to the high level of footfall in retail stores, which inevitably leads to an increased level of wear and tear and damage to building fixtures, fittings and finishes. Many retail tenants also make alterations to their stores to customise the space. They often have to undo those changes at the end of the lease.
Dilapidations can be structural, mechanical, cosmetic or related to health and safety issues. Specific examples include:
- Replacing broken or missing fixtures and fittings
- Fixing damaged walls and flooring
- Resolving plumbing or electrical issues
- Repairing damaged doors and windows
- Reinstating alterations, such as removing partition walls
- Redecorating
- Replacing damaged or missing fire safety equipment
The value of dilapidation claims can come as a shock to tenants, particularly after a long-term tenancy. According to the terms of the lease, landlords may also be able to claim for loss of rent while the repair work is completed, and the professional fees incurred in preparing the dilapidations claim.
That’s why it’s so important you understand your end-of-lease retail repair obligations and take steps to mitigate dilapidation claims.
Find out how to avoid a large dilapidations bill when vacating a commercial property
How to successfully navigate retail dilapidations
Understand the lease terms
Subtleties in lease clauses can have a significant impact on your obligations and potential dilapidation liabilities, which is why it’s so important to be clear about what you’re agreeing to before you sign. Seeking advice from an experienced lease advisory team will help you identify your obligations and negotiate unfavourable terms to limit your exposure.
Arrange a Schedule of Condition
It’s advisable to arrange a Schedule of Condition that documents the condition of the building at the start of the lease. You can add it to the lease to provide a baseline for assessing dilapidation claims.
A Schedule of Condition should include photographs and detail elements of the property that are in disrepair at the start of the lease. As a tenant, if your lease makes you responsible for the structure of the building as well as the internal elements, you may also want to complete a structural survey. Having these documents in place can limit your repair obligations and reduce the risk of a dispute.
Perform regular maintenance and conduct inspections
Once you’re up and running, you’ll understandably focus on the many day-to-day tasks required to operate your shop effectively. However, you should still keep your lease obligations in mind.
You may pay for property management as part of your service charge. However, you should still keep an eye on the maintenance and operation of the premises and resolve any issues as soon as they arise. This proactive approach will protect your premises and help you avoid costly repair bills and dilapidation claims.
Adhere to the lease terms when making alterations
If you intend to fit out or alter the store, always get permission from your landlord and follow the terms of the lease. Bear in mind that you may have to remove the alterations at the end of the lease if the landlord requests it.
Prepare for the lease to end
The landlord can serve you with a Schedule of Dilapidations either before or after the lease ends. If the lease has already ended, you won’t have the opportunity to re-enter the property to do the work yourself. That’s why it’s beneficial to make any repairs and remove any modifications in line with the terms of the lease before it comes to an end.
If you disagree with the landlord’s Schedule of Dilapidations, you can appoint a surveyor to inspect the property. They will assess the landlord’s claims against your obligations under the terms of the lease. An experienced dilapidations surveyor will also conduct negotiations on your behalf and help you challenge unreasonable claims. That reduces the risk of a time-consuming and potentially costly dispute.
How can we help?
At Eddisons, we provide expert advice and practical solutions to help you manage every aspect of buying, selling, leasing and managing your retail premises, including dilapidations. Find out more about our full range of retail property services and get in touch to discuss your requirements with your team.
