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Everything you need to know about dilapidations as a commercial landlord

By: Kelly Bellerson
Commercial Articles

Dilapidations can sometimes be a complex and contentious issue, but having a clear understanding of the process and your rights and responsibilities as a landlord is essential.

Is your tenant’s lease coming to an end? Or perhaps you’ve noticed some considerable damage to your property left by a tenant who is now disputing responsibility? Either way, you’ll need to know the ins and outs of dilapidations.

What are dilapidations?

Dilapidations are the “exit costs” for a tenant at the end of a commercial lease. In some instances, dilapidations may be issued during the lease. However, dilapidations can be broadly categorised into three main types:

Repairs: This includes the restoration of the property to its original condition, addressing any wear and tear caused during the tenancy.

Redecoration: Tenants are typically responsible for returning the property to its original decorative state, including repainting, and repairing any damaged walls or ceilings.

Alterations: If tenants have made any alterations to the property during their tenancy, such as installing fixtures or changing the layout, they may be required to remove these alterations and restore the property to its original state.

What is a Schedule of Dilapidations?

A Schedule of Dilapidations is a report, created by a Chartered Building Surveyor, that outlines the condition of a property at the end of a commercial tenant’s lease.

The Surveyor physically inspects the property on the landlord’s behalf to identify any damages or alterations, or where repairs might be needed in order to return the property to its pre-let condition.

The report highlights whether there are any breaches of contract and allows the landlord to claim damages from the tenant, referring to the terms of the lease.

The dilapidations process

A Schedule of Dilapidations is prepared by the landlord or their agent, detailing all the necessary repairs, redecoration, or alterations required. This document forms the basis for any discussions or legal actions that may follow.

The tenant then has a limited timeframe to respond to the Schedule of Dilapidations. They may agree to the required works, dispute certain items, or propose alternative solutions.

In most cases, landlords and tenants negotiate to reach an agreement on the dilapidations. This negotiation may involve compromise on both sides.

However, if an agreement cannot be reached, either party can take legal action to resolve the dispute.

This can be a lengthy and costly process, so it’s usually in both parties’ best interests to settle amicably whenever possible.

Why landlords should have a dilapidations clause in their lease

A well-drafted lease agreement is essential to clearly define the responsibilities of both parties regarding dilapidations. A dilapidations clause should specify:

  • The condition of the property at the start of the tenancy.
  • The tenant’s obligations regarding repairs, redecoration, and alterations.
  • The procedure for serving a Schedule of Dilapidations.
  • The timeframes for tenant response and remedial work.
  • The consequences of non-compliance, including penalties or legal action.

A Chartered Building Surveyor can undertake an inspection of the property to identify any defects before and at the end of a tenancy.

This makes it easier for landlords to distinguish between pre-existing problems or damages made by the tenant, which can help avoid disputes at the end of the lease.

Further considerations

As a landlord, it’s important to keep the following considerations in mind when dealing with dilapidations:

Regular Inspections: Appoint a Chartered Building Surveyor to conduct regular property inspections to identify issues early and address them before they become major problems.

Fairness and Documentation: Ensure that your Schedule of Dilapidations is fair and well-documented, with clear evidence of the property’s condition before and after the tenancy.

Professional Advice: Seek legal and surveying advice when dealing with complex dilapidations cases to protect your interests and rights.

Mitigation: Landlords have a duty to mitigate their losses. This means taking reasonable steps to minimise the cost of repairs, such as obtaining multiple quotes for the work required.

By having a clear understanding of the dilapidations process, maintaining a well-drafted lease agreement, and conducting regular property inspections, landlords can effectively manage and navigate dilapidations issues while maintaining a positive landlord-tenant relationship.

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