Top Tips for Dealing with Dilapidations

When a commercial lease expires or is early surrendered, dilapidations must be addressed. Whether you are the landlord or tenant, it is crucial to consider this issue well in advance.

The pandemic has wreaked havoc on numerous business sectors, resulting in a significant increase in commercial leases that are not being renewed or where tenants have exercised break clauses. However, it is essential to note that the end of a lease does not necessarily mean the end of the tenant's financial responsibility to the landlord. This is because commercial leases invariably include provisions for dilapidations.

Here are the most important tips when dealing with dilapidations. 

Look at Dilapidations at an early stage.

Firstly, it is essential to consider dilapidations at an early stage. Ideally, this should be done before the lease begins, with an explicit agreement on responsibilities and the expected condition of the premises upon termination. A schedule of conditions should be drawn up beforehand. If you are already in a lease, addressing dilapidations before the end of the lease term puts you in the best possible position for a satisfactory resolution.

As a landlord, it is imperative that you review your Lease to determine what actions you can take if the Tenant has exhausted their self-help remedies or is not complying with the Lease. You must immediately check the repairing covenants, forfeiture provisions, service charge provisions, and any schedule of conditions. Pursuing any guarantors should also be considered, particularly if you plan to perform the necessary repairs at your expense and the Tenant cannot cover the costs. Take swift and decisive action to protect your property and your investment.

Understand your Obligations

When considering a commercial property lease, it is essential to thoroughly understand the repairing obligations and potential costs associated with the property. A few key steps can help you achieve this.

-First, carefully review the lease agreement to ensure it adequately addresses repairing obligations and potential costs. Don't hesitate to seek legal advice for any confusion or dispute.

-Secondly, hire a surveyor to assess the property and determine any necessary repairs and associated costs. They can also assist in creating a schedule of dilapidations for landlords or tenants.

It is crucial to be aware of the dilapidations protocol, which outlines steps to take before commencing legal action. Familiarize yourself with this protocol to avoid any potential issues.

Taking these proactive steps will ensure that you are fully informed and prepared when entering a commercial property lease.

Invest in a building survey before you enter the lease.

To ensure that you are not held responsible for any defects in the construction of the premises, it is essential to identify significant issues, including latent and inherent defects. This can be achieved by preparing a detailed Schedule of Conditions, including written descriptions and photographic evidence of any existing issues. Once the Schedule has been prepared, the lease should be revised to limit your repairing obligation under its information. By taking these steps, you can protect yourself from any potential liabilities and ensure that you are fully aware of the condition of the premises before entering into any lease agreements.

Check what the lease allows you to do.

Tenants must maintain the premises in good repair, addressing any pre-existing issues. It is erroneous to assume that the responsibility solely lies in preventing further deterioration. Furthermore, a lease claiming the premises are in satisfactory condition when they are not is invalid. It does not absolve the tenant of their obligation to rectify any pre-existing damages. Failure to comply with these obligations will result in legal consequences.

Serve a Repair Notice

As the landlord, you can serve a repair notice to your tenant, mandating that they complete necessary repairs within two months. Failure to comply will result in you undertaking the repairs yourself, with the cost then becoming a debt owed by the tenant. This approach eliminates potential disputes regarding the reasonableness of fees, as the amount owed is clearly defined as a debt rather than damages. Your lease must include a specific repair notice provision to enable this action.

Serve Notice to End the Lease

If the Tenant breaches any repairing covenants, you have the right to serve a forfeiture notice under section 146 of the Law of Property Act 1925. This notice will inform the Tenant of the disrepair and provide a reasonable repair timeframe. Failure to comply with this notice will result in termination of the lease. However, if the Tenant completes the required repairs outlined in the lease, the right to terminate will be waived.

Budget for future dilapidations

Consult your building surveyor to determine the exact amount of funds you need to set aside. Tenants should be aware that landlords may examine publicly available account information if a dispute arises to confirm that the appropriate amount has been allocated.

Get expert Legal Advice.

When dealing with dilapidation disputes, taking immediate action and seeking legal advice from experienced professionals is essential. Failure to do so may result in costly consequences, such as court proceedings and adverse cost orders.

Try undertaking the work yourself.

When considering dilapidated work, a risk-benefit analysis must always be conducted with a building surveyor. Depending on the nature and extent of the work, it may be more advantageous to undertake the exercise yourself before the lease expires to maintain control over costs. However, reaching a financial settlement with the landlord, typically after negotiations between surveyors, can offer certainty, especially concerning unforeseen work. Considering the tactical advantage of indicating a willingness to undertake the job yourself is essential, as it can reveal the landlord's true intentions for the premises and assist in settlement discussions.

Be aware of the Pre-action Protocol.

It is crucial to thoroughly review the lease agreement and assess the extent of the dilapidations before responding to any claims made by the landlord or tenant.

Be prepared to negotiate.

Additionally, be prepared to negotiate and consider alternative dispute resolution methods to avoid expensive litigation. Our team of experts is ready to provide you with the necessary support and guidance to resolve dilapidation issues promptly and effectively. Contact us today for assistance.

You must partner with a company with extensive knowledge and expertise in the pertinent property legislation and case law. They must adhere strictly to the Royal Institution of Chartered Surveyors (RICS) code of practice to ensure complete compliance.