Dilapidations at the end of a Lease – be on your guard
Last week we looked at renewal of a business lease when the lease ends. This week we look at another major issue that arises at the end of a lease and one that can be a high value claim that sadly catches out tenants if not managed properly. It is dilapidations.
What are dilapidations?
They are damages and defects to a property that arise at the end of a lease which a tenant is legally obliged to put right under the terms of a lease. In simple terms dilapidations are about disrepair. A dilapidations claim can require a tenant to put right disrepair at the property and/or remove alterations/fittings that perhaps the tenants has installed at the property during the life of the lease. If the tenant doesn’t deal with the disrepair to the standards required by the lease the landlord can do the work but will then claim the cost from the tenant.
What might be the value of a dilapidations claim?
It has been suggested that dilapidations can have a value equivalent to between 12 to 18 months of rent for the premises. It is therefore a significant claim and must be managed correctly to ensure a tenant is protected.
How can a tenant minimise the likelihood of such a claim before and during the lease?
A tenant needs to start thinking about a potential dilapidations claim when identifying premises, that is, before the lease is even signed. The tenant can ask the landlord to prepare a “schedule of condition” of the premises before the lease is signed. Photographs of the premises should be attached.
This will ensure that there is a document right at the outset which confirms the condition of the premises when the tenant first moves in. That evidence will be helpful at the end of the lease if the tenant has to try and prove the condition of the premises when they were first taken on.
The lease also needs to be very carefully worded in terms of setting out clearly who is responsible for repairs. It might be the case that the landlord is responsible for structural repairs and the tenant for internal repair and decoration.
The obligation to keep a place in repair doesn’t arise just at the end of the lease; it is likely to be an ongoing obligation that arises annually or perhaps every two to three years. If a tenant ensures such re-decoration is addressed during the life of the lease then that should minimise the claim at the end of the lease.
Some tenants change premises internally for instance partitioning internal spaces in to smaller rooms and perhaps fitting out premises so that they resemble a shop for instance. Hopefully this will have been done with the consent of the landlord. At least six months before the end of the lease the tenant should be consulting with managing agents / surveyors to ask about whether partitions etc. need to be removed before the lease terms ends. Delaying the removal of partitions and so forth by even a day or having difficulty with decorators who leave things too late can mean another quarter’s rent falls due so these things have to be managed properly and in timely fashion.
How can the value of the claim be minimised at the end of the lease? There is a formal protocol that tenants and landlords should follow to deal with disrepair at the expiry of the lease. The process starts some months before the lease is due to expire. A landlord or his surveyor or managing agent will want to inspect the premises for disrepair. They will then prepare a schedule of dilapidations listing items of disrepair which according to the landlord are the responsibility of the tenant. That list will be given to the tenant. The tenant should then engage his own surveyor to review that list to check item by item what he considers is the tenant’s obligation under the lease and what might fall outside the lease or be the responsibility of the landlord. A value will be placed on the cost of repair. The tenant’s surveyor can look at items the tenant can address itself and perhaps more major items that might have to be done by builders and the like. All disrepair should be done, inspected and passed (by the landlord!) before the tenant vacates the premises on expiry of the lease.
Where dilapidations are not resolved by agreement the matter can end up in court.
Whether you are a tenant or a landlord if you would like legal advice about dilapidations please contact either Manjit Kaur-Heer, Lorraine Walker or Ajmer Kang on 02476 387821 or by email on firstname.lastname@example.org; email@example.com; firstname.lastname@example.org