A Tenant’s Guide to Dilapidation Surveys

What is Dilapidation? 

Dilapidation (dilapidation survey or delap survey) relates to the breaches of lease terms either during or at the end of a lease, although is typically dealt with towards the end of or after lease expiry. The intention of a dilapidation survey is to ensure that the commercial property is returned to the landlord at lease expiry in a condition which is compliant with the relevant lease terms or that a financial settlement is agreed which is satisfactory to cover the loss incurred by the landlord. 

What am I liable for? 

All leases contain obligations that occupiers have to comply with. The lease obligations which are typically referred to when assessing a tenant’s dilapidation liability are the following: ‘repair’, ‘decoration’, and ‘reinstatement’. The wording of leases can be ambiguous and can differ greatly and it is recommended to engage a professional to interpret the wording and advise on the extent of your liability.  

In addition to the lease, various other legal documents may have been prepared at lease commencement and throughout the lease term. Those which are most relevant to the dilapidation are ‘schedules of condition’ and ‘licence for alterations’. The wording and contents of these documents will assist with assessing a tenant’s liability and may help to reduce the value of any dilapidation claim. 

The above documents can often be ‘set aside’ or ‘misplaced’ by tenants which means that tenants will need to approach the landlord to obtain copies. It is imperative that tenant’s keep a record of all these legal documents to ensure that they can be reviewed at lease expiry. 

A landlords approach to dilapidation will be dependent upon what their intentions are for the premises and market conditions. It may be that the landlord intends to re-let the property after completing works; redevelopment the site; agree a cash settlement; or a combination of the above. The landlord’s intentions can have a significant impact on a dilapidation claim and this will in turn influence a tenant’s approach to mitigating their liability.   

What is the process of a tenant dilapidation? 

More often than not tenants will wait to receive a schedule of dilapidation from the landlord (which can sometimes be unexpected!). This is frequently anytime from 12 months prior to lease expiry to after the tenant has vacated the premises. It must be noted that the landlord has no legal requirement to issue a schedule of dilapidation prior to lease expiry. The schedule will contain the landlord’s building surveyor’s interpretation of what works need to be done to comply with the lease obligations inclusive of budget costs and associated professional fees. Although against dilapidation protocol, landlord’s surveyors may inflate claims to provide a stronger basis for negotiating the claim.  

On receipt of a schedule of dilapidation, tenants will typically engage a Commercial Building Surveyor to assist them with negotiating the dilapidation claim or undertake works to the building dependent upon the approach taken and time constraints. 

How can I mitigate my liability and plan for any claim? 

The approach to mitigating any liability and planning for any future claim will be subject to the specific circumstances. There are a number of common approaches and processes which can be followed to plan ahead. 

Schedule of Condition: If you are about to take a new lease on a property which is in a state of disrepair, it is recommended that you limit your repair liability to ensure that you are not liable to put the premises back into any better condition than at lease commencement. This is typically through the production of a schedule of condition. 

Early discussions with the landlord: When approaching lease expiry (circa 12 months prior to lease expiry) we recommend undertaking early discussions with the landlord to understand what their intentions are for the property. This should provide enough time to make contact with the landlord who may be difficult to reach. It will also enable you to instruct a dilapidation liability assessment, plan and obtain costs for any works which you intend to undertake, and/or identify a strategy which best suits your business. 

Undertake a dilapidation liability assessment: A building surveyor will be able to prepare a dilapidation liability assessment. This assessment will detail the works which are required for the tenant to comply with the lease obligations, inclusive of budget costs and recommendations on how to mitigate their dilapidation liability. 

Do the some or all the anticipated works: Following the assessment and discussions with the landlord it may be more cost effective to undertake all or a proportion of the dilapidation work. Tenants may be able to procure the works for a lower price than landlords and can control the timescales for completing the works. This will also the reduce the likelihood of landlords trying to make a claim for consequential losses, which are costs associated with loss of rent, business rates, service charge etc. 

Set aside funds to cover the likely claim: The tenant may wish to set aside suitable funds to cover any financial settlement and the figures reported within the dilapidation liability assessment can be used to assist with this. This approach may be preferred as undertaking works could have an adverse impact on a tenant’s operations or may not be feasible for other reasons. Alternatively, it may be that a tenant is satisfied with coming to a financial settlement. As referenced above, the landlord’s intentions for the property and market conditions can reduce the dilapidation claim; this approach will put the onus on the landlord to demonstrate the loss which has been incurred. 

We hope you found this blog helpful, you can also check out our dilapidation survey checklist. At Commercial Building Surveyors, we offer Dilapidation surveys in the following parts of the UK: Dilapidation Survey Bristol, Dilapidation Survey London, Dilapidation Survey Manchester, Dilapidation Survey Cardiff.

Or you can head straight here for more information about: Schedule of Dilapidation