Commercial Property Services | Dilapidations

Dilapidations

Commercial leases usually include an obligation on the tenant to return the premises in good and substantial repair throughout free of all fixtures and fittings and to fully reinstate upon lease expiry or earlier termination.

Dilapidations claims, by nature, are complex, contentious negotiations and can be a substantial financial liability, so they should be budgeted for and professionally negotiated.

Obligations

Schedule of dilapidations

Damage to reversion

Prevention

Obligations

The covenants under the terms of the lease form the tenant’s obligations to maintain and repair the property.

Dilapidations state how the tenant is required under contract to restore the property to its original state (or pre-let state), i.e. undertaking repairs and reinstatement, even when properties have been improved under a license for alterations.

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Schedule of dilapidations

A schedule of dilapidations is a detailed costed schedule that a landlord must serve on the tenant to make a formal claim.

We and our partners use various methods, including lease terminology to leverage negotiations and minimise or maximise settlements for our clients whether acting for a tenant or landlord respectively.

Damage to reversion

Damage to the reversion is a loss of value in a landlord’s property from a tenant’s failure to comply with reinstatement/repair obligations.

For a claim to arise, there has to be damage to the reversion, namely a loss to the landlord based on the condition the premises have been left in.

As an example, a landlord cannot claim damages for breach of a repairing covenant from a tenant if it intends to demolish or substantially alter the property after it obtains vacant possession.

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Prevention

When acquiring space, tenants can often mitigate future liabilities.

There are various ways in which end-of-term dilapidations liabilities can be minimised, usually via agreeing that a photographic schedule of condition (PSOC) be carried out whereby the tenant is required to return the premises in no worse condition than as evidenced by the schedule.

Average settlements for tenants over the last decade have equated to approx 35% of total landlord claims.