Dilapidations – Are you prepared or scared?
A short survival guide for business tenants
Do you remember the excitement of entering into the lease of your new business premises, maybe many years ago? Being caught up in the frenzy of activity, you put to the back of your mind the thought of the day when you would hand back the keys to the landlord.
You recall something about a Schedule of Dilapidations, and the associated costs but put that to the back of your mind.
Now judgement day has arrived and you need to consider your liability for dilapidations - essentially the cost of putting a property into repair in accordance with the lease.
What should I do in preparation for leaving my premises?
It is always better to be prepared in advance, rather than leaving everything to the last minute when you have to vacate the premises too. Therefore, if you are certain that you are leaving, then you should contact your landlord at least a month in advance of your departure date to find out what they are going to expect you to do in terms of repairing the premises. This can sometimes save you a lot of time and expense, because often, if you are aware of what the landlord’s requirements are, then it can be cheaper for you to undertake the works than it would be leave the landlord to do it, and then claim the costs back from you.
What should I do if I’m served with a Schedule of Dilapidations?
If you cannot or do not undertake the works before you leave and later receive a Schedule of Dilapidations from the landlord, the first step is to check the whether it has been properly served upon you i.e. within 56 days of the end of the lease. Once you are certain that it has been validly served, then it is important to understand your obligations pursuant to the lease and what works you are liable to undertake or pay for (if any).
There is a Pre-Action Protocol in place for dilapidations claims which sets out the procedure and encourages early disclosure, but your solicitor will be able to advise you on this.
Tenants are expected to respond to the Schedule of Dilapidations and Quantified Demand (which sets out the money due) within 56 days of receipt.
Remember - what the landlord can claim may be limited by:
- the fact that the landlord intends to demolish the property once you have vacated or
- any works that an incoming tenant has done which would render your repairs worthless; or
- statute – there is a statutory limitation on damages known as the “section 18” limitation which limits the landlord’s claim for damages to the diminution in the value of the landlord's reversion caused by the breach of the covenant to repair.
Our top tips before you sign the lease are:
- Ensure that there is a Schedule of Condition recording the property’s state before the lease was entered into;
- Understand your obligations pursuant to the lease;
- Don’t leave dilapidations to the last minute! Clarify what needs to be redecorated if at all possible with the landlord in advance;
- Set aside finance to pay for dilapidations or undertake the remedial works yourself where possible in order to save costs; and
- Seek advice from a solicitor and surveyor.
If you have left dilapidations to the last minute then we would advise that you seek advice from a solicitor and surveyor as early as possible so that they can commence any negotiations.
This is a complicated area of law and you are best advised to seek legal advice before you end your lease because prevention is better than cure. If you are about to enter into a commercial lease, ensure that you take expert advice on your dilapidation obligations at the outset, and certainly as you are nearing the end of your lease. It could save you a great deal of time and expense in the long run.
If you are a tenant and considering your options for your premises please contact Nicole Kalli (T: 020 7462 6960 E: nk@cbglaw.co.uk) or Mark Brassey (T:0207 462 6027 E: mb@cbglaw.co.uk) to discuss further.