Commercial Lease Dilapidations - Tenants Beware!

Dilapidations is the term used to refer to the failure of a tenant to maintain, repair, or restore a property to the condition stipulated in the lease agreement during or at the end of the lease.

Dilapidations can take various different forms and include:

• Maintenance and repairs - this includes both internal and external parts of the property dependant on the terms of the lease.
• Decorations – most leases require the landlord’s approval to any decoration works within the final three months of the lease.  Some leases also require decoration to be undertaken at fixed points during the term.
• Reinstatement – if alterations have been made to the property during the term, the tenant will likely be required to remove those alterations at the end of the term of the lease.
• Compliance with Statutory Obligations - such as Health & Safety and Fire Safety in accordance with the lease terms.

It is not uncommon for tenants to fail to regularly maintain the property in accordance with the lease or carry out unauthorised alterations which can result in substantial remediation works being required on or before expiry of the lease in order to restore the property to the original state and condition.

Before the end of the lease, normally within the last 6 months of the term, the lease may provide that the landlord has up to 6 months from the expiry of the lease to do so, the landlord will normally instruct a qualified Surveyor to assess the property and prepare a Schedule of Dilapidations (Schedule). The landlord’s costs in obtaining the  Schedule are usually recoverable from the tenant, however this would be dependant on the terms of the lease.

The Schedule will be formally served on the tenant by the landlord and ideally this should be prior to the expiry of the Lease and in any event in accordance with any timeframes set out in the lease.

The tenant will have typically 56 days form service of the Schedule on them within which to respond to the landlord. The tenants should instruct their own surveyor to formally respond to any agreements or disputes set out in the Schedule.

There will be a period of negotiation whereby the surveyors acting for each party will negotiate to agree the extent of repairs and associated costs.

Once agreement has been reached, should the tenant fail to carry out the repairs required, the landlord will normally arrange for their surveyor to prepare a Quantified Demand setting out the costs of any necessary works and formally serve the same on the tenant as soon as possible. The tenant will then typically have another 56 days to respond.

During the term of the lease the tenant should maintain accurate records of all maintenance and repair works carried out as these records can then be utilised in defending any actions brought by the landlord for any unjustified claims of dilapidations.

Should an agreement not be reached, the landlord may look to commence legal proceedings against the Tenant.

Due to the nature of the negotiations involved with dilapidations, the Landlord will normally look to start the process as soon as possible prior to the expiry of the Lease. The landlord may include a Quantified Demand within the initial Schedule in order that the tenant can have the option of making a payment to the landlord in accordance with the demand rather than carrying out the works required themselves and thus drawing a swift conclusion to the matter.

Should the tenant fail to address the dilapidations, the landlord may make a claim for damages against the tenant. It is therefore vital the tenant seeks professional advice as soon as possible.

By understanding their obligations, communicating openly with the landlord, and seeking professional advice when needed, tenants can navigate the process of terminal dilapidations effectively and minimise the risk of disputes and financial liabilities.