Dilapidation in commercial property, key steps to avoid disputes

The Schedule of Dilapidations that is served on the Tenant, when vacating business premise on the expiration of the lease can come as a shock, particularly if the Tenant is vacating the property due to financial constraints.

The work demanded by the landlord is often unexpected. It is therefore, unsurprisingly, one of the most common disputes we see between landlord and tenant.  What causes the disputes?  What steps can you take to avoid it?

Many Tenants need to carry out alternations to the premises when they take possession. This is likely to include things like signage and other alterations that make it work for that business.

In some sectors these are fairly minor but in others they can be extensive. This is understood. However, to carry out any alterations, even one that can easily be changed back, you should get a written Licence for Alterations from the Landlord. This Licence should make it clear what the changes are going to be and should be evidenced with schedules of work, estimates, plans and drawings and, if necessary, photographs.

A Commercial Lease will include a clause that requires that the premises are kept in a good state of repair and condition, this means redecorating when necessary. At the expiration of the lease, you will be required to return the premises to the Landlord in the same state as it was when let to you. That typically means redecorating it within the last 3 months of the tenancy. If the Landlord feels that they cannot relet without additional remedial work, then they may make a claim for dilapidations. This claim is usually very expensive, which is why tenants so often dispute it.

The Landlord’s Schedule of Dilapidations is typically prepared by their surveyor (i.e. a professional in this role). The Schedule will be detailed and will include superficial damage as well major damage. This may include damage to paint work and wear on the flooring and water damage.  It is the surveyor who estimates the likely cost of repairing all damage.

One issue we see a lot is that the surveyor appointed by the Landlord is not briefed on the condition of the property when it was let. They assume that all the wear and tear to the property was as a result of the Tenant’s occupation and no consideration is made for any pre-existing issues. In effect the Tenant is asked to pay for improvements to the premises. This is where the dispute arises.

The first thing we do, as solicitor acting for the Tenant, is to instruct a surveyor to inspect the premises on their behalf and prepare a rebuttal of the Landlord’s surveyor’s schedule. Typically, there is then some negotiation between the surveyors and, hopefully, an agreement is reached that satisfies everyone. The agreement will normally be a payment to the Landlord for the repairs, or for works to be carried out by the Tenant.

This is not a straightforward process, and it is often lengthy and expensive. There are simple ways to avoid it:

1. Ensure that there is detailed evidence of the state and condition of the premises when you take the lease. The Landlord will take photos, but you should take your own. Ensure that all damage, and other repairs that are needed, however minor, are recorded. These then should become a “Schedule of Condition” and should be annexed to the lease.
2. Don’t try and review the lease yourself. A good, specialist solicitor will ensure it’s clear and fair and will take steps to advise you of the possibility of a Dilapidation Claim and how it might be avoided.
3. Ensure you keep the premises in a good state of repair. Decorate regularly and repair minor damage before it becomes major.
4. Prior to the expiration of the Lease, contact your Landlord at least 6 months before that date and try to agree what works, if any, the Landlord requires to be done before you leave.
5. Review the work required against the “Schedule of Condition” and raise any issues you spot. Ensure these discussions are recorded in writing.
6. When you have carried out the work, ask the Landlord to confirm, in writing, that they’re happy.
7. The day you leave the premises, after your removers have done their work, take more photos so that you have evidence of the condition you left it in.