Dilapidations - the hidden costs of renting a commercial property

The term ‘dilapidations’ refers to the wants of repair in a leasehold property for which the tenant is responsible.  At the end of the term of the lease, the landlord will serve a terminal schedule of dilapidations on the tenant.  This schedule will usually be issued by a surveyor and will list the items that the landlord feels require attention by the tenant to bring them up to the standard of repair that the lease requires.  It may also include a costing schedule for the works.  Many unsuspecting tenants have been badly stung when receiving large unexpected bills from their landlord.  As a result, this is a heavily litigated area of property law.

The lease will set out who is responsible for keeping the property in repair, and to what extent. Many repair clauses require the tenant to put the property into repair even if it wasn’t in good repair to begin with.  The longer the tenant occupies the property, the greater the liability is. Even if you have substantially improved the premises, you may still be liable for additional costs when you leave. The landlord cannot though ask you to hand back a new property.

If you have a lease including the roof and structure of the premises then you will be expected to keep them in repair.  Even with an internal demise, this will likely include boilers, electrical installations etc.  If the wiring is not safe, or the gas boiler gives up the ghost two months into the term, you may have to replace them, even if your lease is short.  This sounds grossly unfair on the face of it but ‘caveat emptor’ applies as much here as it does when buying property – buyer (or tenant) beware!

The best way to limit this liability is to carve out exactly what you will be responsible for during the negotiations for the lease.   If the property is not in a good state, agree a schedule of condition with your landlord and a limited repair obligation.  This limits the repairing liability to the current state of repair, and evidences the same with photographs attached to the lease.  You can take the pictures yourself, or pay a surveyor to do it for you.  Be aware of the limitations of your schedule of condition; it will be limited to the quality of the photos and what is within them.  If you do not take a picture of it, or if no one knows what the picture is of, the repairing liability for that item will revert to full.  Equally, a picture of a boiler will not tell you whether it worked when you moved in.  If you have an issue with less visible wants of repair at the outset, set them out in the schedule, in writing, or ask your landlord to repair or replace them before you move in.

Money spent getting the right advice at the outset could save you thousands of pounds at the end of the term.  Even if the terms of the lease are not negotiable, being aware of the liability and planning for the future costs will help avoid a nasty (and expensive) surprise.

If you have any queries at all on entering into a new lease of a commercial premises, please contact Jenny Colvin in our Commercial Property team on 02392 776558 or email jennycolvin@warnergoodman.co.uk.  If you are concerned by a dilapidations claim made by your landlord under your existing lease, please contact Helen Porter in our Property Litigation team on 02380 717425 or email helenporter@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.