Interim vs. Terminal Schedule of Dilapidation

Interim vs. Terminal Schedule of Dilapidation

Dilapidation is a process which occurs to ensure a property is put or kept in a condition which is in accordance with a tenant’s lease obligations. The dilapidation survey process typically occurs towards the end of lease and these are referred to as terminal schedule of dilapidation. Sometimes dilapidation matters can arise during a tenant’s lease term and these are called interim schedules of dilapidation. Some commercial building surveyors also refer to a final schedule of dilapidation which is a schedule served after a lease has expired. 

What are the differences?

Timings:

An interim schedule of dilapidation can be produced and served on a tenant anytime from commencement of their lease and is typical served up to two years from lease expiry. 

A terminal schedule of dilapidation can be produced and served during the last 2 years of a lease term although is more commonly served within the last 12 months. The terminal schedule of dilapidation will also need to be updated to reflect the condition of the property on the date of lease expiry as this is the date when the breach of the lease occurs. 

A final schedule of dilapidation is produced following expiry of the tenant’s lease. A landlord will need to ensure that a building survey is undertake as soon after the lease expiry as possible to ensure the contents of the schedule of dilapidation adequately reflects the condition of the property at lease expiry. 

Contents: 

An interim schedule of dilapidation should only include items which if not completed would result in the additional degradation of the building and lead to higher repair costs should the works be undertaken at a later. It will also include items which need to be undertaken to meet statutory compliance and items which are impacting the value of an asset. An interim schedule of dilapidation would typically not include for reinstatement of tenant alterations owing to them being in occupation. It will include reactive and essential repairs and may also include some decoration items which will assist will prolonging the design life of elements, so typically external decoration. 

A terminal schedule of dilapidation (and final schedule of dilapidation) should include all items which need to be undertaken by the tenant to comply with their lease obligations. This will often be repair, decoration, reinstatement and statutory compliance items. 

Budget Costs: 

An interim schedule of dilapidation does not typically include budget costs for the items included in the schedule. 

A terminal schedule of dilapidation typically includes budget costs which may be revised if actual costs are obtained from a contractor. Following lease expiry a schedule of dilapidation should include a Quantified Demand.

Settlement/conclusion: 

Consideration and suitable legal advice should be sought prior to serving an interim schedule of dilapidation as there are various mechanisms and differing options available to a landlord which will be dependent upon a tenant’s lease obligations. In some circumstances it may be beneficial to issue a repairs notice if this is deemed more suitable. The various outcomes could be that a tenant negotiates and undertakes a level of works; the tenant may do nothing and the landlord may have limited recourse to get them to complete the works; or the tenant may not undertake any works and the landlord may enter the property and complete the works and recover the associated costs as a debt. 

The conclusion to a terminal schedule of dilapidation (or final) will either be that the tenant undertakes all or a proportion of the associated works prior to lease expiry. If some or all works are outstanding following lease expiry then the landlord may look to undertake the works and/or negotiate a financial settlement. The recovery of costs associated with terminal and final schedule of dilapidation are dealt with as damages.  

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.

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