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.