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This Q&A provides basic information on some of the questions M³ Dilapidations Consultancy frequently get asked by clients:
What is Dilapidations?
Dilapidations is a specific area of law relating to the breaches of lease covenants and obligations (non financial) either during or at the end of the term.
Due to a tenants occupation of premises, there is often a lack of maintenance, damage, and non compliance with the decoration, reinstatement, yield up and statutory covenants. It is common for a landlord to serve a schedule of dilapidations on the tenant for breaches of the lease and commence a claim for damages.
What is the repairing liability on my property?
The only way to fully understand the repair liability is by undertaking a thorough review of the lease and detailed inspection of the premises.
How do I deal with my dilapidation’s liabilities?
Advice will vary depending on several factors such as landlords’ intentions for the premises, the property location, lease terms and condition of the premises but essentially the options available to a tenant are:
Undertake the dilapidations works (prior to lease expiry)
Negotiation of a financial settlement (Damages payment to the landlord)
A combination of works and a financial settlement (ie. undertake strip out and certain repairs and negotiate residual claim)
Do nothing
Section 18 (1) Diminution Valuation (provides a statutory cap)
Each and every case is different so careful consideration is required in every case to ensure the strategy is correct.
What is a Dilapidations Liability Report ?
A Dilapidations Liability Report (DLR) provides an estimate of the dilapidations liability at a particular point in time during the term. This will take into account the lease documentation, works due under the lease and an estimate of the likely cost of the works.
Our reports provide commentary on strategy and options available on exiting a property to assist the client with their lease exit strategy.
What are the benefits of a DLR?
The main benefits include:
Having an accurate provision within your company accounts so no surprise costs or hits to cash flow.
The assessment can influence whether to remain or vacate the premises
Tax relief from the date the provision is made
Compliance with Financial Reporting Standard 12
Am I only required to give the property back in the same condition as at lease commencement?
Very unlikely. Tenants often take on full repairing leases which can mean the premises are required to be put into repair regardless of the condition at lease commencement. There are many factors to be taken into account though such as the wording of the lease terms, age of the premises, location, the surrounding area and the landlords intentions.
I have a schedule of condition so am I protected against Dilapidations?
A schedule of condition will assist in reducing liability but it’s unlikely to give you 100% protection against a dilapidations claim. It will also depend on the detail & quality of the initial schedule of condition that was produced and which covenants is provides protection on.
Do all the alterations have to be reinstated?
This will very much depend on the wording of the lease and any licenses to alter/ deeds of variation. Often a landlord is required to serve notice upon a tenant within a specific time frame but careful consideration of the alterations and yield up clauses is required.
What should I do if I receive a Schedule of Dilapidations from my landlord?
Once a claim is received it can be quite daunting. Speak to a building surveyor who has the necessary experience in dilapidations and they will be able to provide the required advice from protocol compliance to understanding the lease terms to providing the required strategy to minimise your lease exit costs.
What should I do if I do not receive a Schedule of Dilapidations from my Landlord?
Just waiting for the landlord to serve a schedule of dilapidations could mean you're playing into their hands.
A landlord may serve a schedule of dilapidations close to after lease expiry in order to achieve a financial settlement. There are benefits to taking a proactive approach to dilapdiations in order to minimise costs such as approaching the landlord early and gaining the upper hand during negotiations.
What benefit will a Dilapidations surveyor bring to a claim?
A dilapidations surveyor will have detailed knowledge of leases & other lease documentation, be skilled in identifying defects & how to remedy them and understand the correlation between these two aspects.
It’s essential that a dilapidations surveyor has an understanding of different strategies available and the necessary negotiation skills.
A dilapidations surveyor will also understand the dilapidations protocol and have an understanding of dilapidations case law and valuation aspects which may affect the dilapidations claim.
What should the dilapidations strategy be to exit a property?
As all properties, leases covenants, market conditions, landlords & tenants are different there is not a one size fits all strategy for dilapidations. A strategy should be put in place before lease expiry/ break clause to ensure that an exit from the premises can be achieved at minimum cost.
Sometimes a proactive approach is recommended and sometimes a sit and wait approach but again, this will depend on many factors. Each case is analysed on its merits in order to provide the required strategy.
What are break clauses and are they easy to activate?
Break clauses often have conditions associated with them. This may include vacant possession, material compliance and absolute compliance. Advice should be sought well in advance of the break clause as works may have to be undertaken in order for the break clause to be successful.
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