Dilapidations claims at the end of commercial leases: what landlords and tenants need to know

For tenants of residential properties, the expiration of their lease usually entails packing up their belongings, tidying up and doing a final cleaning, handing back the keys and moving to their new accommodation. In most cases, that is pretty much all there is to it.

However, the same cannot be said for the tenants of commercial properties and this is due to the nature of commercial leases, which almost always provide that the tenant is responsible for any dilapidations at the expiration of the lease term. In some cases, the nature and extent of the dilapidations can be the root cause of a protracted and costly dispute, which sometimes ends up in court.

What are ‘dilapidations’?

Over time, all properties incline towards disrepair and deterioration. Paint or wallpaper may peel, service pipes or conduits become clogged, dry rot or woodworm can set in, leaks open in roofs or other problems may manifest which require repair, redecoration or replacement. Taken as a whole, these defects are known as ‘dilapidations’.

Under the terms of a commercial lease, a tenant is required to return the property to the landlord at the end of the term in the same state and condition that it was in when the tenancy started.

To ensure that this is done, the landlord will usually send in an expert surveyor to inspect the property shortly before the end of the term. The surveyor will make a list of all the items that require repair or replacement and then serve a ‘Schedule of Dilapidations’ (which is, in effect, a dilapidations claim), on the tenant who is responsible for putting right every item on the Schedule.

Accepting or disputing the schedule of dilapidations

Although the dilapidations are the responsibility of the tenant, this does not mean that the tenant has to necessarily accept the Schedule at face value. A commercial lease will set out the parts of the premises for which the tenant and landlord are, respectively, responsible for. Usually, the tenant is responsible for all the interior parts, while the landlord is responsible for the exterior parts or fabric of the building.

When it comes to most of the typical dilapidation issues, it is not always clear whether the repair is the tenant’s or the landlord’s responsibility and every prudent tenant must bear in mind that the landlord will be inclined to shift as much burden away from themselves and onto the tenant.

Therefore, it is not advisable for any tenant to simply accept the Schedule at face value. Instead, it is open to the tenant to engage the services of their own surveyor expert, who will be able to scrutinise the Schedule with an experienced eye that most tenants do not possess.

In cases where both parties have their own respective experts, those experts will, more often than not, thrash out some agreement between them and amend the Schedule accordingly.

DIY or financial settlement?

Assuming the Schedule of Dilapidations can be agreed upon, then every tenant has a choice between carrying out the necessary remedial work themselves or coming to a financial settlement with the landlord.

Many tenants prefer the DIY approach because it means that they hire the contractors and, thus, control the cost of the remedial work. However, the DIY approach, while initially more expedient and attractive, should never be undertaken before the tenant has received advice from their own expert. Otherwise, they could find themselves forking out money to pay for repairs or reinstatements for which they were not, in fact, responsible.

The other method is to seek to come to a financial settlement with the landlord. However, tenants should avoid trying to negotiate without their own expert advice. Most landlords have significantly more experience in these matters, and they can use that experience to extract far more money from the tenant than the tenant strictly needs to pay. It is, therefore, for the tenant to allow their own expert surveyor to conduct the negotiations on the tenant’s behalf.

Don’t just plough on alone

Dilapidations are and always have been a potential nightmare, and the bigger the premises and the longer term, the more complex the issue and resultant Schedule is likely to become. Regardless of whether a tenant adopts the DIY or the financial settlement method, they really should engage the services of an experienced, qualified property surveyor and seek a legal review of the terms of the lease before taking any irreversible steps.

The Royal Institute of Chartered Surveyors estimates that the average cost of dilapidations to be £7.27 per square foot. So, it is easy to see that the bill for commercial property dilapidations can easily run to six figures. Even seven-figure sums are not entirely unknown. The right professional advice can save an enormous amount of both money and grief.

For further information and trusted legal advice regarding commercial property, get in touch with us at Carlsons Solicitors.