What to do if I’m served with a Schedule of Dilapidation

What is a Schedule of Dilapidation? 

Dilapidations is a process that occurs at the time of lease expiry (sometime during the lease term, but this is less common) and relates to the works that are required to a building or property to put it in a condition which is compliant with a tenant’s lease obligations. A schedule of dilapidations is drafted by or on behalf of a landlord and will provide a detailed breakdown of the works which are considered by the landlord or landlord’s surveyor as being required to comply with a tenant’s lease obligations, inclusive of associated costs. 

What should I do when I receive a schedule of dilapidation? 

Following a dilapidation survey by a commercial building surveyor, a schedule of dilapidation or dilapidation survey report will be produced. The first thing to do when you are issued or served with a schedule of dilapidation is to review the contents to ensure that it is meant for yourself (including your company etc.). Review the document to check the lease and other legal documents which are referred to, the building address, name to whom the schedule has been addressed to. 

Once you have confirmed that this is correct then you will need to ensure that you have full copies of all associated legal documentation that relates to the commercial building, this will be the lease, any licence for alterations, schedules of conditions etc. which will impact the dilapidations claim. 

We then recommend that you contact a number of commercial building surveyors to obtain some guidance on the next steps and fee proposals for them to act on your behalf. It is important to engage a chartered commercial building surveyor as they are familiar with the intricacies of dilapidations, including being able to review the lease terms, assessing these against the works and reviewing the landlord’s costs.

Once you have decided on a commercial building surveyor you will need to instruct them. They will review the schedule and all other legal documents and advise you on the most appropriate next steps.  

What are the outcomes/next steps? 

The chosen route for finalising a dilapidations claim will depend on numerous factors including timescales, the tenant’s financial situation, the tenant’ s intentions, the landlords intentions for the property etc. The main outcomes are as following, although more often than not the outcome will comprise a combination of the following:

Negotiate a new lease: If a tenant intends to stay in the commercial property then they will likely negotiate a new lease with the landlord. At this time the dilapidations claim can be reviewed and may be included within these negotiations. It may be that a tenant’s lease obligations continue and that their dilapidations liability is effectively deferred until expiry of the new lease. Sometimes a landlord may ask for some works to be undertaken to prolong the life of the building. These are all items which can be discussed and agreed by both parties. 

If the intention is to not stay in the premises then the following applies:

Do works: If there is sufficient time and the works outlined by the landlord are deemed reasonable then it may be beneficial to undertake some or all of the works prior to lease expiry. This will mean that the landlord is provided with a building which complies with the tenant’s lease obligations and there will be no residual claim. Works can often be procured by a tenant for a lower cost than a landlord owing to tenant’s often having less stringent procurement procedures.  

Financial Settlement: Should there be limited time or the tenant not be in a position to undertake the works then the building surveyor’s engaged by both parties with negotiate the items and costs included in the schedule of dilapidation. The intention is to agree a reasonable figure which reflects the loss which has been incurred by the landlord.  

A combination of the above: More often than not a combination of the above is proceeded with. A scope of works may be undertaken which reflects what the tenant believes the landlord will undertake, or what they deem are reasonable to comply with their lease. Any remaining items/issues can then be negotiated and cash settlement agreed to cover these.  

Wait and see: Alternatively it may be beneficial to wait and see what the landlord’s intentions are for the property. There is various case law and legislation which assists with reducing a tenant’s liability if the landlord is to significantly redevelop a building and site. It must also be noted that a landlord does not suffer a loss until such time as they undertake the works, so a tenant can hold out and negotiate hard to minimise any financial settlement. 

There are positives and negatives to all the proposed options and it is recommended to discuss these in detail with a commercial building surveyor before proceeding. 

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