What Should Commercial Landlords or Tenants Consider?

What are Dilapidations?

Dilapidations refer to the unacceptable state of disrepair that a property may be in during or at the end of a lease. The tenant must comply with the repairing and maintenance duties outlined in the lease agreement. Neglecting these duties will result in dilapidation disputes and severe financial consequences, including the landlord's right to pursue damages from the tenant. Addressing these issues and restoring the property to the required condition is solely the tenant's responsibility, and failure to do so can lead to serious financial consequences.

Here are some critical considerations for Tenants

The Condition of the Property

Before signing the lease, tenants must conduct a comprehensive property inspection to identify and document any pre-existing defects. This is crucial to provide concrete evidence in case of future disputes. It is imperative to review the schedule of conditions referenced in the lease as it outlines the condition to which the tenant must restore the property at the end of the lease. 

Your Lease Obligations

Tenants must thoroughly review the lease to fully comprehend their responsibilities, including maintenance, repairs, redecoration, and any unique conditions. They should also examine additional documents, such as alteration licenses and variation deeds. If any provisions are unclear, tenants should immediately seek legal counsel.

Address Notices/Schedules

As a tenant, you must take any notice regarding dilapidations seriously and respond promptly. This may include a section 146 “forfeiture” notice served by the landlord during the term or a schedule of dilapidations served either during or at the end of the lease term. It is recommended that tenants engage solicitors to review any notices or schedules to ensure that the specified issues are the tenant's responsibility. Tenants should also proactively engage in discussions with the landlord and consider appointing a surveyor to assess the schedule and negotiate terms. Failure to address these matters may result in serious legal consequences.

Undertaking Works

It is advisable for the tenant to promptly address any purported breaches without dispute by undertaking the necessary repairs themselves. This approach can save the tenant from incurring additional expenses, such as landlord fees and litigation costs. It is essential to strictly adhere to the timeframes and deadlines outlined in the dilapidations notice or schedule. Failure to do so may result in further consequences.

Some Key Considerations for Landlords

Assess Potential Dilapidations

The landlord must take immediate action and arrange for a surveyor to inspect the property without delay. The surveyor will determine the exact scope and cost of any breaches of the repairing covenant. If the lease has not expired, the landlord must comply with all right-of-entry provisions outlined in the lease, including providing the tenant with sufficient notice of the inspection.

Serving a Tenant with a Notice

Once potential breaches have been identified, the tenant must receive a formal notice or schedule listing the breaches and detailing the required repairs and redecoration. A section 146 “forfeiture” notice must be issued, giving the tenant a reasonable timeframe to rectify the breaches. A schedule of dilapidations must be served towards the end of the lease, including an itemized cost estimate for the necessary works. These notices and schedules must comply with statutory requirements and be served appropriately to be effective. Landlords must seek professional advice to ensure compliance.

Negotiations

Landlords must negotiate with tenants to reach a mutually agreeable resolution. This will involve an explicit agreement on the exact scope of repairs, a definitive timeline for completion, and fair compensation instead of repairs.

Legal Action

Should negotiations fail or the tenant fails to comply or respond to a notice or schedule, landlords must take legal action to enforce, recover repair costs, or seek damages. It is imperative to engage a solicitor in such circumstances.

Conclusion

Dilapidations in commercial property leasing demand careful consideration from both landlords and tenants. A thorough understanding of lease terms, negotiation skills, and legal advice are crucial. Proactive management of dilapidations is essential for maintaining a cooperative landlord-tenant relationship and protecting interests. Dilapidation disputes require the guidance of a solicitor and/or surveyor to achieve a fair resolution. Contact our team at CDL, and we will introduce you to the best surveyors and solicitors to look after your project.