Home Commercial Property The property doctor: How to protect against the unforeseen expense of dilapidations?

The property doctor: How to protect against the unforeseen expense of dilapidations?

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27th Oct 11 7:33 am

You’re doubtless already battling spiralling London rents and painful business rates. But business tenants often miss that other bane of commercial property rental: dilapidations, which can cost a huge amount when you move. Property guru Anthony Lorenz explains how to avoid the charges.

Dilapidations are the disrepair which a tenant (commercial or private) is liable for when they have agreed lease obligations that require good repair. There are a several ways tenants can minimise cost. Here we deal with the most frequently asked questions on dilapidations

Q What can a tenant do to safeguard against dilapidation charges?

A The first thing to do is initially when taking the lease. A tenant should agree a “schedule of condition” where the landlord agrees that on leaving the premises need not be in a better state.

Q If a tenant has caused damage what should they do before moving?

A Thought must be given to dilapidations well ahead of any move, even up to a year in advance. This will allow time to approach the landlord about the dilapidations to discuss whether they want the works done, or whether they would prefer the money. Invariably, landlords want the money and under those circumstances if a tenant is proposing to do the work, they are in a better negotiating position.

It is worth keeping a dilapidations fund on an annual basis to carry out repairs so as the tenant does not experience an unexpected cash flow shock when it is time to move.

Q Are there factors that lessen liability?

A Yes. Tenants should be aware of the landlord’s intentions at the end of the term. The dilapidations liability of a tenant is limited to the loss that the landlord suffers if the tenant does not carry out repairs in accordance with obligations.

But if the landlord was to make substantial changes to the property then the tenant may not be liable. For example, if the landlord is going to convert an office building into residential – which is quite common in today’s market – he will suffer no loss for the offices being in a poor state of repair.  
If there is no loss, there is no claim. Every claim is capped at the landlords’ provable loss.

Q Is a tenant liable for charges if they alter the premises?

A Yes, usually. When the tenant undertakes alterations, he must ensure that a licence for alterations is obtained. The licence often includes a “re-instatement clause”, whereby the tenant has a duty to re-instate the building to its original state at the start of the lease.

This is especially the case if the alterations are an improvement to the building as even though dilapidations are limited to damage to the landlord’s freehold value, re-instatement clauses are obligatory and therefore the landlord can demand the money even if the alterations are an improvement to the value of his or her freehold.

Q Who can tenants go to for advice or help?

A There are several experts on dilapidations claims including large national firms and smaller practitioners that can help tenants know how to minimise charges or have building teams.

Anthony Lorenz is the founder and chief executive of The Lorenz Consultancy, which specialises in all aspects of commercial property from agency to rent reviews, lease renewals and break clauses, dilapidations, valuation and litigation.

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