For commercial landlords, property maintenance and lease compliance can feel like walking through a minefield. Among some of the most treacherous challenges are dilapidations—issues arising from a tenant’s failure to maintain or repair a property as required under the terms of a lease. If overlooked, these problems can lead to significant financial losses and legal entanglements. To protect your property and profits, it is essential to avoid the following dilapidations issues that too often catch landlords off guard.

1. Neglecting Lease Clarity

Many disputes over dilapidations stem from vague or poorly drafted lease agreements. A lease that lacks clarity around the tenant’s repair obligations, reinstatement requirements, and the standard of maintenance expected from a tenant will inevitably lead to complications down the line. Ensuring that your lease agreements are robust, legally sound, and tailored to each property is the first line of defence. If you’re unsure, it’s wise to seek professional legal advice and avoid relying on templated agreements that might not reflect the specifics of your asset.

2. Failing to Monitor Tenant Compliance

One of the most common pitfalls is waiting until the lease expires before assessing the condition of the property. By that point, extensive disrepair may have accumulated, reducing the value of the asset and increasing the cost of reinstatement. As a landlord, take the time to schedule in regular inspections and document the condition of the property throughout the tenancy. This proactive approach helps to identify and address maintenance issues early, and provides a clear audit trail if you need to take legal action.

3. Underestimating the Importance of a Schedule of Condition

Whilst a detailed and professionally prepared Schedule of Condition at the outset of a lease can often be considered invaluable to a tenant, a properly prepared and detailed photographic and written record can actually protect both parties, by setting out a benchmark for determining what “good repair” looks like at lease end.

4. Ignoring Legal Advice in Pursuit of Speed

In an effort to move quickly, landlords sometimes overlook legal nuances when preparing terminal schedules of dilapidations. A poorly presented or overly aggressive schedule can backfire significantly and could lead to disputes or even counterclaims. Enlist the help of legal and surveying professionals who are experienced in dilapidations to ensure your claims are realistic, defensible, and compliant with the Dilapidations Protocol.

5. Misjudging the Financial Implications

Failing to understand the financial implications of disrepair can undermine your investment returns considerably. If the cost of works exceeds the recoverable amount from the tenant, or if re-letting is delayed due to necessary repairs and results in vacant periods, profitability can take a serious hit. Make sure you have a clear asset management strategy in place that incorporates repair schedules and budgeting for refurbishment to minimise your losses.

6. Disregarding Tenant Reinstatement Obligations

Tenants often make alterations to suit their operational needs, and while commercial landlords expect this to an extent, leases usually require reinstatement to original condition at the end of the lease term. Landlords who overlook these obligations could find themselves inheriting unsuitable layouts or costly alterations, depending on what their previous tenants have done. Be vigilant in tracking tenant works and ensure that all reinstatement provisions are clearly outlined and enforced before the lease comes to an end.

7. Delaying Action at Lease Expiry

Finally, hesitation at the end of the lease can be costly. The longer you delay in preparing and serving a terminal schedule of dilapidations, the harder it becomes to enforce claims and recover costs. Remember that legal time limits apply, and deterioration continues with time, so acting promptly will strengthen your legal position and speed up the process of bringing the asset back up to market condition.

In the high-stakes world of commercial property investment, inattention, neglect and delays can be costly. In order to avoid these common problems where dilapidations are concerned, landlords should seek professional advice to safeguard their property assets and reduce legal risk.

At Bradley-Mason, we have extensive experience in all aspects of commercial dilapidations, and we offer tailored services to help you manage your business assets. Contact us today to request a quote or for more information.

When a commercial lease comes to an end, the process of assessing and claiming dilapidations can often become contentious between landlords and tenants. Dilapidations refer to disrepairs, damages or alterations made without consent that the tenant is liable for rectifying when they vacate the property at the end of the lease term. When presented with a Schedule of Dilapidations, tenants may view the required repairs as unexpected costs and disputes can arise.

As a commercial landlord, it is important to understand your rights under the law regarding who pays or a dilapidation report and the claims process to protect your interests from tenant actions. Having a clear understanding of your legal position can help ensure the dilapidations process goes smoothly.

Understanding Your Rights Regarding Dilapidations

As a commercial landlord in the UK, you have certain key rights when it comes to dilapidations claims that are important to be aware of. First, under the Landlord and Tenant Act 1927, landlords have an automatic right to claim against tenants for any breaches of their repairing obligations or damages to the property. This means you can legally seek compensations for disrepairs or alterations the tenant was responsible for rectifying per the lease agreement.

You also have the right to serve a Schedule of Dilapidations on the tenant during the last 6 months of the lease term. This detailed document will specify all the dilapidations issues that need to be remedied before the lease expires. The tenant is legally obligated to address these dilapidations outlined prior to vacating the premises. As a landlord, it’s advisable to engage a Schedule of Condition at the beginning of a lease to protect yourself and your tenants.

In addition, the 1927 Act grants landlords the right to inspect the property’s condition at any point during the lease term, as long as proper notice is provided to the tenant. This allows you to identify potential dilapidations early on and bring them to the tenant’s attention.

Who Pays for the Dilapidation Report?

A dilapidation report conducted by a surveyor is a key piece of evidence in supporting a landlord’s claim. But who is responsible for covering the cost of this report – the landlord or the tenant? In most cases, it is the landlord who pays for the dilapidation survey report upfront. The cost then gets built into the overall claim against the tenant for compensations.

For a report to be considered impartial evidence, it should be commissioned independently by the landlord rather than jointly. The landlord has a right under property law to inspect the premises during the lease term after giving notice. Therefore, they can commission reports whenever needed. If the claim goes to court and succeeds, the judge may award the reasonable cost of the report back to the landlord as part of the judgement.

While the landlord typically pays upfront, if repairs are deemed the responsibility of the tenant, the cost of an independent dilapidation survey is a recoverable expense through the compensation claim process.

What is the Process for Pursuing Dilapidation Payments?

If a commercial tenant fails to satisfactorily meet the terms of a dilapidations agreement by rectifying disrepairs to the proper standard before vacating the property, the landlord may need to take further steps to recover the costs incurred.

Property lawyers typically advise landlords to conduct a thorough property inspection or have a dilapidations survey carried out before the end of the lease term. This allows time to hopefully resolve any disputes through negotiation rather than resorting to formal legal proceedings, which can be prolonged and expensive for both parties.

If the tenant refuses to willingly compensate the landlord for identified dilapidations issues, the landlord can formally serve a Schedule of Dilapidations prepared by an independent surveyor outlining the breaches of repair obligations. If the disrepairs remain unaddressed when the tenant vacates at lease end, the landlord has the right to enter the property, survey conditions and undertake necessary repairs.

The next step would be for the landlord to send a formal letter demanding the tenant pay the dilapidations costs within a set timeframe. Mediation is also an option before going to trial to reach a settlement.

Taking a Claim to Court

If a commercial tenant refuses to pay for dilapidations after receiving the landlord’s formal demand for compensation, the matter may end up being resolved through the court system. The landlord will need to file a Part 7 claim with the appropriate court based on the property’s location and serve it on the tenant to initiate proceedings.

From there, both parties will go through a process of disclosing all relevant documents, including property reports, correspondence, repair estimates, photos and more. If no settlement agreement can be reached beforehand, the court will set a trial date, and all involved must exchange witness statements and expert evidence prior.

Overall, pursuing a dilapidation claim in court can be time-consuming and complex. Landlords should seek experienced legal help to build the strongest possible case with thorough evidence and preparation.

Dilapidations can be a complicated and often contentious matter that can be notoriously difficult to resolve. This is where our dilapidation surveys can offer real benefits. Our dilapidation surveyors will help identify the areas where damage or alteration to the property has occurred and where tenants are liable for repairs, and provide expert assistance to help with any court cases.

To find out more about commercial dilapidation surveys at Bradley-Mason LLP and how we can help you, contact us today and we will be delighted to answer any queries.

DISCLAIMER: This article is for general information only and not intended as advice. Each project has its own set of unique circumstances, all potential issues should be investigated by a surveyor on a case by case basis before making any decision.

The vast majority of commercial leases contain repairing obligation clauses which specify the extent of the tenant’s responsibility to maintain and repair the property being leased. The landlord will be concerned to see that the property is not devalued by a tenant’s neglect, so clauses in the lease will set out cleaning, redecoration, repair, prevention of alteration etc. Failure to comply with these clauses will leave the tenant open to landlord action to enforce the lease covenants.

Dilapidations are breaches of covenant to repairing obligations, leaving the landlord to recover the loss suffered as a result of the tenant’s failure to maintain the property as per the lease terms and/or return the property in its original state at the end of the lease term.

Bradley-Mason LLP are leading specialist commercial dilapidations surveyors acting for tenants and landlords in all aspects of dilapidations and leasehold repair matters. Our Dilapidations Surveys are highly detailed investigations into the current condition of the building and can be undertaken during the lease term or towards the end of a tenancy.

Established in 2004, we use a proactive approach to advising clients aimed at ensuring compliance with the Dilapidations Protocol while avoiding unnecessary costs and minimising the need for lengthy disputes or legal proceedings. Take a look at some of our Dilapidations Settlements and Surveys Case Studies to see the depth and breadth of our work.

Why tenants should consider dilapidations at the outset

When searching and budgeting for business premises, business will typically consider obvious cost lines such as rent, business rates, utility bills as well as any service change and fit-out costs. However, thinking about dilapidations liabilities that might arise at the end of the lease is unlikely to be front of mind at the beginning of the term. Unfortunately, ignoring or underestimating the impact of dilapidations can lead to potentially expensive and unexpected costs being incurred.

Much better outcomes can be achieved by agreeing clear repairing and dilapidations clauses at the outset. This is key information that the tenant can use for assessing the suitability of the premises before signing the lease and estimating their liability during and at the end of the lease.

In particular, the following factors should be taken into account:

• Age, size and type of property
  Are you looking to rent modern office premises or a period building? Is it a small retail unit or a large industrial shed?
• Construction materials
  What is the physical condition of the building? What building materials are used? Is there evidence of deleterious materials or contamination? Is the building statutorily compliant?
• Lease term
  How long is the lease? Is it a new lease or are you taking over a remaining lease from another party by way of assignation?
• Schedule of Condition
  Does the lease contain, or can you insist on obtaining, a photographic record to show the property’s condition as a benchmark for your repairing obligation?
• Repairing obligations
  What is the extent of your liabilities? Are you responsible for the interior or the entire building? Do you need to redecorate at the end of the lease? Who repairs the roof?
• Fit-out
  Are there any conditions/limitations for fitting out the leased premises? Do you need to remove your fit-out and reinstate the property to its original condition when you exit?

What happens at the end of the lease term?

A commercial lease will usually allow the landlord to serve a Schedule of Dilapidations on the tenant specifying any repairs that the tenant is liable for during the lease term and within a reasonable amount of time after the end of the lease. We would recommend that a specialist dilapidations surveyor such as Bradley-Mason LLP is instructed to prepare and serve the necessary documents.

Where a dilapidations liability exists, the following options may be suggested:

• The tenant will complete the necessary works at their own expense. Where they fail to do so, the landlord will instead complete the necessary works at the tenant’s expense.
• The landlord will complete the necessary works at the expense of the tenant.
• The tenant will pay the landlord compensation equivalent to completing the necessary works, regardless of whether the landlord actually carries out the works.

How Bradley-Mason LLP can help

Dilapidations is a complex area that requires specialist expertise to advise and guide both landlords and tenants. The sums involved in disputes and litigation can run into millions of pounds, so getting the basics right at the beginning is of critical importance.

At Bradley-Mason, our experienced dilapidations surveyors provide extensive expertise and professional advice regarding potential dilapidations under new or existing lease arrangements. We can also help with regular advice in respect of interim dilapidations during the lease term. Whether you are a landlord concerned about your tenant’s breach of repairing obligations, or a tenant concerned about your landlord’s unrealistic dilapidations claim, we can advise on the obligations under the lease, ascertain the legal position and develop a strategy to agree an acceptable outcome.

Get in touch to discuss your dilapidations matter with our expert team.

DISCLAIMER: This article is for general information only and not intended as advice. Each project has its own set of unique circumstances, all potential issues should be investigated by a surveyor on a case by case basis before making any decision.

As many are aware, the HMRC has revised their approach surrounding the treatment of VAT on payments relating to damages and compensation i.e. dilapidations. The new approach we understood will come into effect from 1st March 2021, after the HMRC have advised a push back from the initial date of 1st February 2021.

Following recent rulings in the European Courts of Justice, compensation and damages payments for exiting a contract early have been considered as a payment which is envisaged under the contract, hence should be consider for VAT. Previously, HMRC classified such payments as outside the scope of VAT because they were not paid under the contract.

Whilst there is still uncertainty regarding the impacts to dilapidations settlements, it is considered that such payments of damages, will fall within the scope of VAT. Landlords and Tenants therefore need to plan for this and consider the implications of VAT at an early stage, including making allowances from a cash flow perspective.

We appreciate dilapidations can be a mind-field, never mind the complexities surrounding VAT and here at Bradley Mason, we are well placed to advise how best to exit your property. Please do not hesitate to contact the team for further assistance.

DISCLAIMER: This article is for general information only and not intended as advice. Each project has its own set of unique circumstances, all potential issues should be investigated by a surveyor on a case by case basis before making any decision.