Demystifying Dilapidations: A guide for Occupiers
Understanding and navigating the complexities of dilapidations is crucial for occupiers in the built environment.
Dan Metcalf, Head of Commercial at AG Built Environment Consultancy specialises in dilapidations and provides commercial and strategic landlord and tenant advice. He has provided dilapidations advice and acted for some of the largest European funds, global and national Occupiers and large UK property companies.
What is a Dilapidations claim?
Dilapidations claims are brought against an Occupier/Tenant following an alleged contravention of their lease obligations – generally relating to breaches of repair, redecoration, reinstatement and statutory compliance.
If items within a dilapidation claim are valid, then these are usually resolved by:
The Occupier undertaking the works to a standard that meets their lease obligations or…
Compensating the Landlord by agreeing a financial settlement in lieu of the works or…
A combination of the above two.
How can an Occupier reduce their risk and liabilities?
Prior to taking on a lease
The best way to reduce your lease end liabilities is actually prior to the lease is agreed, by instructing your Building Consultant to carry out a Pre-lease survey. The instruction will involve an inspection of the premises and advise you on the condition of the building, in particular any liabilities which may become the Occupier’s responsibility under a typical lease.
This information can be shared with your legal advisor to ensure, where possible, onerous items are negotiated out of the lease. It is not uncommon for premises to be in disrepair at lease commencement. Many commercial leases require the occupier to ‘put and keep’ the property in repair, it is therefore wise to limit this liability where possible by recording the condition of the property at lease commencement and limiting liability by returning the property back to the Landlord in ‘no better’ condition than evidenced by a Schedule of Condition (SOC).
A SOC is an inventory of the condition of each element of the building and should also provide evidence of the layout of the building at lease commencement therefore reducing any lease end arguments regarding reinstatement.
During the lease term
Leases often contain provisions for Landlords to enforce the repairing obligations during the lease term to protect their asset, these are becoming increasingly popular with Landlords.
A Landlord can inspect and serve a repairs notice under the Jervis v Harris clause within the lease which will set out the breaches of lease, and typically a tenant is obliged to remedy within a set time frame stipulated by the lease. If the works are not started/completed within the time frame, the Landlord can enter, undertake the works, and claim the monies back as a ‘debt’.
This approach prevents the occupier from seeking to limit the Landlord’s claim via a Section 18 of the Landlord and Tenant Act 1927, and more generally common law, which is an advantage for the Landlord.
In our experience, those that take a proactive approach to their dilapidations come out best. It is strongly recommended that the Occupier determines their potential future liability at least 12 months prior to lease end. This can be done by instructing your Building Consultant to prepare a Dilapidations Liability Assessment (DLA).
Once in receipt of a DLA, a bespoke exit strategy can be formulated.
It can often be a cheaper option for the Occupier to undertake some works as they would have control of the works with regards to the extent, standard and cost. It is helpful if a Landlord serves a Schedule of Dilapidations prior to the end of the lease, however they are not obliged to do so.
If the Landlord prefers a cash settlement rather than the Occupier undertaking the works – they may well serve the Schedule late in the day or after lease end.
At the end of the lease
At the end of the lease, the Occupier should receive a Schedule of Dilapidations, this usually includes cost estimates for undertaking the works. Now the lease has ended, the occupier’s ability to undertake the works themselves has passed and the dispute must be settled by way of ‘damages’.
The Occupier’s Building Consultant should analyse the Schedule of Dilapidations in detail by checking each alleged breach, both in terms of reviewing if the item is a genuine breach or if the requested remedial measure goes beyond the Occupier’s liability and is not the most cost-effective approach.
Consideration should also be given to the possible effects of the statutory cap that may be placed on a Landlord’s claim by section 18 of the Landlord and Tenant Act 1927. This in effect, can limit what a Landlord can recover from the Occupier.
Our Approach
AG Built Environment Consultancy is a recognised dilapidations and Occupier service specialist. We take a proactive approach rather than allowing a Landlord to dictate the pace and the outcome of the Dilapidations process.
We strive to ensure you understand and limit your liabilities and minimise the risk of expensive litigation – leaving you to get on with your day job other than dealing with drawn out disputes.
Over years of dealing with complex and high value dilapidations claims, we have developed a framework of exit strategies which we can systematically apply to your situation and have been proven to make huge savings.
If you’d like advice on making savings on your lease exit, please get in touch.
