Dilapidations are a breach of covenant for which a business tenant is liable under the terms of a lease and thought should be given to them before you receive an unwelcome bill. The liability of the lease usually includes an obligation to repair and to decorate, however there are several ways in which tenants can minimise costs and here we deal with some frequently asked questions.
What can a tenant do to safeguard against dilapidation charges?
One way of minimising liability is to agree a Schedule of Condition before signing a lease and this will actually record the condition of the premises at the lease commencement. The repairing covenant can then be limited to no better than its original state.
If damage occurs to leased premises what does the tenant need to do?
Dilapidations need to be properly considered well in advance of the expiry of the date of the lease. Appoint a qualified advisor who can assess the level of liability associated with any disrepair and who will open discussions with the landlord in order to agree an amicable solution, whether it is undertaken of works or a cash settlement. We recommend this is done annually to avoid a backlog or un-expected cash flow issues.
How can we limit the liability?
Tenants need to be aware of the landlord’s intentions at the end of the lease. If the landlord was to substantially alter the premises the tenant may not be liable for some of the repairs arising out of the lease. For example if a landlord converts an office building into residential (a strategy often utilised in today’s market) no loss will be incurred by the landlord as a result of the tenants lack of repair, as the conversion works would render valueless any repairs previously required.
Is the tenant liable if they alter the premises?
A tenant is usually liable for the cost to put the property back into the condition and layout at the lease commencement. If a tenant undertakes alterations he must ensure that a licence for alteration is obtained. The licence will usually include a reinstatement clause, which will detail what the tenant needs to undertake before lease expiry.
Dilapidations are usually limited to the diminution of the value of the property being returned to the landlord, however reinstatement clauses are obligatory and the landlord can demand the money in lieu of reinstatement works, even if the alterations are an improvement to the value of the freehold property.
For further information and advice on dilapidation issues, please contact Alistair Douglas firstname.lastname@example.org at Petty Chartered Surveyors or call 01282 456677.