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Mitigating Dilapidations
Ignoring dilapidations can be a costly mistake – as a commercial Tenant you are highly likely to have an obligation from day one under the terms of your Lease or Tenancy agreement.
The key steps to mitigating a dilapidations claims are:
- Understanding your lease obligations and liabilities.
- Preparing for lease breaks and end of tenancy.
With dilapidations, timing is everything in terms of financial impact and minimising disruption to your business.
During the Lease Term
- Landlords should consider issuing an Interim Schedule of Dilapidations particularly if they are concerned about Tenant breaches which affect the value of their property.
- Landlords should also consider their right to enter and inspect premises and to serve a Repairs Notice on a Tenant where they have identified a breach of lease covenants, including identifying the extent of the breaches.
Key timescales for a lease break or expiry:
Signing of the lease to 24 months prior to expiry.
- Have you asked a chartered surveyor to assess the dilapidations liability so that you satisfy current accountancy standards and accrue funds within the business accounts?
- Will you remain in the building or relocate?
At 18 months
- Have you made your decision to move or to remain in occupation?
- What is the minimum amount of work you need to undertake?
- Have you accrued for this?
- If you are exercising a break option, what are the conditions of the break?
At 12 months
- Within the final twelve months a Landlord can legitimately issue their claim for terminal dilapidations, however they may choose to delay until there is insufficient time for the Tenant to undertake work.
- A Tenant can also request the Terminal Schedule of Dilapidations from the landlord, the Landlord however does not have to comply with that request.
- What is the minimum scope of work required under the terms of the lease?
- What standard of work is required by the lease?
- Will the landlord discuss a cash settlement instead of you doing the work?
- Can you comply with the break clause conditions?
At 6 months
- Has your landlord served a Schedule of Dilapidations?
- Will this be delayed for tactical reasons?
- There is still time to mitigate your dilapidations liability.
At 3 months
- Is it already too late? No.
- However, by this stage, if the dilapidation issues have not been identified or remedied, tactically the upper hand shifts to the Landlord.
- The timescale for completing the necessary work could have passed.
- A Landlord may still agree to a “deal”, but it could well be at a cost higher than if the Tenant had dealt with the issues earlier.