DILAPIDATIONS – LANDLORD AND TENANT
A schedule of dilapidations is an inevitable consequence of any commercial lease, protecting landlords from excessive repair costs when the tenancy concludes. At Philip Russell Associates, our team can prepare and advise on the necessity of schedules of condition at the commencement of leases (to limit tenants’ liabilities).
During the tenancy, or at the end of leases, schedules of dilapidations can be prepared and negotiated on behalf of landlords or tenants. We have extensive experience representing either party and are experts in this complex field of work. Our aim is always to keep our clients informed, and ensure they receive the most favourable outcome possible, by providing guidance, technical explanations and a realistic assessment of the situation as it unfolds.
Advice is also given on the licensing and monitoring of any alterations in accordance with lease conditions.
DILAPIDATION SURVEYS FOR LANDLORDS
Commercial landlords should protect themselves in the event of breaches of Lease covenants by having a professionally assured and prepared Schedule of Dilapidations at the end of a lease. Should a problem escalate to Court, a well-prepared Schedule of Dilapidations can be used as evidence, although expert handling normally prevents disputes reaching this level.
HOW DOES A SCHEDULE OF DILAPIDATIONS WORK FOR COMMERCIAL LANDLORDS?
As the lease comes to an end you may need to serve Notice on your tenant, reminding them of their obligation to make good any alterations or damage which has been made to the property. The Schedule of Dilapidations (and a Quantified Demand), prepared by us, will need to be sent within 56 days of the conclusion of the lease.
Once this has been served, your former tenant must send an Endorsed Response within 56 days, detailing any disputed items. From this point, your surveyor will negotiate a settlement between the different perceptions on each statement.
HOW WILL THE SCHEDULE OF DILAPIDATIONS / QUANTIFIED DEMAND BE CALCULATED?
The Schedule of Dilapidations will detail the cost of reinstatement, repair, redecoration and statutory compliance works which should have been carried out by the tenant prior to their departure. Your Quantified Demand cannot exceed the estimated costs for repairs plus consequential costs, nor exceed the amount by which the value of your property has decreased as a result of the damage or alterations (damage to the reversionary interest).
HOW IS A DISPUTE RESOLVED?
Where two parties cannot come to an agreement, alternative dispute resolution (ADR) is encouraged. This is commonly accomplished using a single expert surveyor to negotiate between both parties, or may involve a different surveyor representing the landlord and tenant respectively. At Philip Russell Associates we have acted in many negotiation procedures as expert on behalf of the client and are sometimes called upon to act as Expert Witness in litigation proceedings, as, if ADR is unsuccessful, the matter will escalate to Court.
DILAPIDATIONS NEGOTIATION FOR TENANTS
Philip Russell Associates is experienced in managing dilapidations claims on behalf of tenants, whether they are leasing offices, retail units, warehouses or another commercial unit. Most commercial leases will include various covenants about dilapidations liability, ensuring that the tenant leaves the premises in a good condition and state of repair and these can be onerous.
WHEN DO TENANTS NEED TO BE CONCERNED WITH DILAPIDATIONS?
Ideally, before you sign the lease. Carrying out a survey of the property before you agree to move in will help you to understand its condition, raising any existing potential for required repairs. Where buildings are found to be in an especially poor condition, it is usually still the tenant’s responsibility to put them right.
Should a survey uncover a need for extensive maintenance, you could negotiate for a lower rent, reduced premium, or have the building’s condition taken into account in your lease. If you agree with your landlord to leave the property in no worse condition than you find it, you will need to commission a Schedule of Condition to record this.
WHAT IF I HAVE MADE ALTERATIONS TO THE PROPERTY?
There should be a clause in your contract detailing whether you need to return any alterations to their original state when it comes to leaving the property. If your landlord granted you specific permission to make alterations, you may wish to speak to them about whether they feel the changes have added value to the building, in which case they may be happy for you to leave them. If you did not have consent (either from your landlord or within your lease) to make alterations to the building then the landlord may request reinstatement.
If a claim is raised by the landlord against them, tenants (or former tenants) should seek professional advice about whether to challenge the claim. In virtually all claims by Landlords’ these can be successfully challenged and the quantum of damages applicable reduced.