November 11, 2015
Dealing with dilapidations: Saving time, money and effort
Leasing a commercial property is a very different proposition from renting residential accommodation and dilapidations costs can be one of the most intimidating factors for business owners thinking about moving their premises to consider.
In this guide, we’ll offer some top tips on saving time, money and effort when dealing with dilapidations that’ll help you make your office move as smooth as possible.
Dilapidations costs arise when a business seeks to move out of its leased property and are part of English Law relating to commercial properties. While Welsh legislation currently falls in line with that of England, Scotland and Northern Ireland both have their own rules on dilapidations that are decidedly different.
Laws surrounding dilapidations stretch back to the 14th century and have obviously seen dramatic changes during the intervening period.
In brief, dilapidations legislation dictates that commercial landlords are due compensation in cases where their tenant has failed to meet their obligations in regard to the upkeep of their leased property.
These obligations can cover issues like maintenance, repairs and even periodical decorating.
The condition of a commercial property – and the resulting costs to restore it to its original state – are decided by way of a survey, carried out by a qualified surveyor.
This is typically conducted towards the end of the lease term, however, in some cases, surveys to assess the condition of the premises can be undertaken periodically throughout the tenancy.
Once carried out, the surveyor will present a report to the landlord, noting the presence of any defects or damage to the property and the repairs required to return the premises to its original condition.
This report, known as a schedule of dilapidations, will then be handed to the tenant by the landlord, or a solicitor acting on their behalf.
In order to satisfy the conditions of the schedule, the tenant can opt to undertake the works themselves while they still occupy the property, or may agree a financial settlement to cover the costs of repairs after the lease period has ended.
Doing your due diligence
The first step in minimising the impact of dilapidations takes place before you even move in to your premises. It’s vital to ensure that you get professional advice when evaluating the terms of the lease.
For instance, unless there’s a formal record and agreement in place regarding the condition of the property prior to the tenancy – this won’t factor into the dilapidations costs.
While somewhat unintuitive, it’s hard to overstate just how important getting dilapidations advice before the lease begins is.
Only by procuring and agreeing upon this documentation, known as a Schedule of Condition, beforehand will it have any impact when it comes time to move on.
This will also prevent your company from falling foul of a common pitfall, whereby lease agreements require the tenant to keep a property in repair – even if the premises – or sections of it – need to be ‘put’ into repair in the first place.
Get an idea of what’s due
To avoid getting stung by a hefty fee at the end of your tenancy, it’d be advisable to look into getting an assessment of the premises carried out by a surveyor while you’re still in occupation.
Known as a Dilapidations Liability Assessment, this report will give you a likely indication of how much you’ll need to pay at the end of the lease and as such, let you budget accordingly.
You may also be able to make a start on tackling at least some of the issues while you’re still occupying the premises – saving yourself time and money after the fact.
Taking the reins
Carrying out the works needed to reinstate the property to its original state can often be financially advantageous for the tenant.
By taking the proverbial bull by the horns, you’ll be able to decide who carries out the works and manage the resulting costs. However, it’s crucial to take professional advice to ensure that you’re addressing issues covered in the lease and to a level that satisfies its conditions.
While it’s possible to arrange to revisit the property after the lease has expired to undertake repair works – this isn’t guaranteed.
Similarly, if you’ve been operating out of a serviced office – you may not be permitted to undertake the works yourself.
While highly dependent on the type of landlord you’ve signed an agreement with, you may also be able to reduce or forgo the cost of dilapidations depending on how the property will be used after you’ve flown the coop.
For instance, if your landlord plans to convert the office to residences (a move that can be particularly favourable in light of the extension of permitted development rules), this can nullify the need to reinstate it to its previous state.
Similarly, if the following tenant plans to radically alter the space, this can invalidate the need for repairs. Or, if they like what you’ve done with the place – they may opt to keep certain aspects of the workspace, mitigating your liability and costs.
While more applicable to smaller landlords, the relationship you’ve developed with yours can make a big difference in terms of what agreements you’re able to flesh out.
In his Law Donut article on the subject, CS2 associate director Mark Humphries states:
“If you have built up a good relationship with your landlord, the dilapidations process can be made much less expensive. For a start, you can ask the landlord to ‘serve’ the dilapidations claim directly to you, instead of through a solicitor, saving you £350 or more before you even begin.
“If you have a bad relationship with a landlord, seek advice early on or things can turn out badly. For example, the landlord might wait until after the end of the lease (when you have handed over the keys and lost control of the building) and then serve a dilapidations claim. Or, depending on what the lease says, the landlord may hire expensive professional advisers and charge you for their full cost.”
Take professional advice
Whatever strategy you opt to pursue, or if you aren’t sure of where you stand – it’s vital to take professional advice, even if it’s just on a consultation basis.
It’s hard to overstate just how beneficial this can be in terms of highlighting your options and finding the right course of action to minimise the amount of time, effort and money you have to spend on dilapidations.
If you’ve had any issues with dilapidations, or think we’ve missed any good tips – be sure to leave us a comment below or get in touch via Twitter. We always love to hear from you.
And if you’re looking to change your commercial office in the near future, don’t hesitate to get in touch to see how we can help you create your ideal workspace today.