Case Study - Commercial Dilapidation Surveys

Dilapidations: what are your rights as a commercial landlord?

Posted on April 9, 2024April 9, 2024 by bradleymason

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.

An Introduction To Dilapidations

Posted on May 25, 2023June 25, 2024 by bradley.mason

What are Dilapidations?

Dilapidations is the term normally used for repairs required under a Lease. Most commercial Leases in the UK place an obligation on the Tenant to undertake a variety of repairs, decoration and other express covenants which may include complying with Legislation, cleaning the Premises or reinstating any alterations at the end of the Lease. Dilapidations is the term generally used for the works which a Landlord asks a Tenant to undertake either during the term, or at lease end.

The Difference Between Residential and Commercial Tenancies

In the UK the main difference between most residential and commercial agreements is that typically a Landlord would be responsible for the repairs to a residential property and the Tenant would be responsible for repairing a commercial demise. The exact terms of this are dependant upon the terms of the Lease, which is the Contract between the Landlord and Tenant. The basic legal principles of any Dilapidations Claim is therefore based on Contract Law.

Record of Condition

There is often a requirement to record the condition of a building either prior to a Lease or before some construction work or access onto a property is made. This is often referred to as Dilaps or Delaps although this would normally be called a Schedule of Condition. This is a detailed record of the condition of the building and when used in a Lease can be very useful to limit a Tenants liability at the end of the term or illustrate works a Landlord is claiming.

What is a Schedule of Dilapidations?

A Schedule of Dilapidations is the document which the Landlord would prepare to identify the works required by the Tenant. This would typically identify why the Tenant is in Breach of the Lease, what Lease clauses they should comply with and the works a Landlord considers are necessary. In some cases the Landlord may advise the Tenant of the cost of these works. If served during the Term this is known as an Interim Schedule of Dilapidations, or in some cases a Repairs Notice. If the Lease is about to end the document may be called a Draft Terminal Schedule of Dilapidations, and if the Lease has ended then the Landlord would be making the claim for Terminal Dilapidations. The final claim is also known as a Quantified Demand.

Interim Dilapidations

If a Landlord is concerned over the condition of their property then under most modern Leases a Landlord can undertake an inspection, assess whether the Tenant is complying with the terms of their Lease and issue a Notice on the Tenant. Depending upon the wording of the Lease, the Landlord may issue a Section 146 Notice or a Simple Repairs Notice which the Tenant must comply with. In some cases if the Tenant does not comply, the Landlord can enter the property, undertake the work and claim back the cost from the Tenant.

Does the Landlord Have to Serve a Schedule of Dilapidations?

Overall there is no obligation on the Landlord to remind the Tenant of the works they should undertake under a Lease. It is the Tenants responsibility to read the Lease and undertake the works required by their Lease. Under most Leases, a Tenant is required to reinstate any alterations they make and in some cases a Landlord must notify the Tenant if they require reinstatement. This is not always the case and the Lease will often place the obligation on the Tenant to reinstate any alterations they have made.

How do you Assess the Standard of Repair?

This is something a lot of Tenants are unsure over, in particular if they are undertaking the work. The wording of the Lease will typically state the extent and quality of works required and in some cases this may be limited to the condition shown in a Schedule of Condition, which would record the state at the start of the Lease. The age and character of the building is also important as the standard of repair on a new property may vary from a short term Lease on an older site, which may have been let many times. A basic principle which is often followed is that a Tenant is required to undertake the repairs, to a standard which would be acceptable to a reasonably minded Tenant, having regard to the “age, character and location of the property”, on Lease commencement.

How do you Know What Work to Undertake?

Hopefully most Landlord’s would be helpful in advising the Tenant of the works which they consider needed by the end of the Lease. In some cases a Landlord must notify the Tenant if reinstatement of alterations are required and in some cases the colour of decoration, the type of carpet or similar must be agreed with the Landlord. If a Tenant is unsure or requires more detailed advice then it can be useful to prepare a Dilapidations Assessment. This can be prepared by a Chartered Building Surveyor and it would be similar to a Schedule of Dilapidations. It would review the Lease, consider the Tenants obligations, assess the condition of the building and suggest the works which may be required. This could be useful if a Tenants requires an early indication of work required. It is also very useful to provide a future Dilapidations budget, in particular if required for accountancy purposes, where under FRS102 a Dilapidations Assessment may be required by Auditors to provide future provision in companies accounts.

Dilapidations Procedures

Procedures should be followed by both Landlord’s and Tenants when dealing with Dilapidation’s. In particular the Royal Institute of Chartered Surveyors provide useful guidance in the form of the RICS Guidance Note, Dilapidations in England and Wales, 7^th Edition. It is also important to follow the Dilapidations Protocol, which is the Pre-Action Protocol for claims for damages in relation to the physical state of a property and this is published by the Property Litigation Association.

What do you do if you Receive a Claim from the Landlord?

Whether received during or after a Lease, the first step would be to check the terms of your Lease or similar agreement to establish if you are liable for the property and the parts claimed. It may be useful to refer to a Chartered Building Surveyor for further advice. If the Lease has ended then the Dilaps Protocol requires the Tenant to respond to the Landlord within 56 days, otherwise they may incur penalties if the Claim proceeded to Court.

The further defence and negotiation of Dilapidations can be a difficult and protracted process and we would recommend the advice of a Chartered Building Surveyor at all stages of this process.

Dealing with Dilapidations – what you need to know

Posted on August 22, 2022February 28, 2024 by bradley.mason

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.

Dilapidations and VAT Update

Posted on January 21, 2021February 28, 2024 by bradleymason

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.

3 Reasons You May Need A Dilapidation Survey

Posted on January 20, 2020February 28, 2024 by bradley.mason

As one of the leading dilapidation surveyor specialists in the UK, Bradley-Mason LLP act for landlords and tenants in all aspects of dilapidations and leasehold repair. Our proactive approach to advising on dilapidations ensures compliance with the dilapidations protocol and is designed to avoid unnecessary costs, so that a settlement can be reached without the need for legal recourse.

Commercial dilapidation surveys are essential, especially if you are a contractor, developer or landlord about to start a new project. The in-depth property survey assesses and documents the state of building elements and structure including minor wear and tear. A detailed report reveals the work required to restore the property back to its original condition before the tenancy.

Dilapidations surveys are needed to give landlords an insight into whether maintenance contracts have been adhered to in accordance with the terms of the tenancy agreements. Works such as building construction, developments, infrastructure projects, road works, excavations and demolitions have the potential to cause faults in structures if the correct precautions are not taken, making any damage costly to remedy. Since it is often hard to prove how this happened and who is to blame, a dilapidation survey may be a good idea.

By commissioning an independent third-party surveyor, fairness is guaranteed for all parties involved, while bias and underhand techniques used to create or prevent additional works or affect the financial implications can be eliminated. Commercial properties from across all sectors including office, retail, leisure and industry are likely to have a need for a dilapidation surveys.

Here are three key reasons as to why a dilapidation survey may be required:

Dilapidation surveys are a useful precautionary measure, highlighting the existing condition of the property including any areas that may be vulnerable to damage, and protecting the interests of all parties in the event of a claim.
Dilapidation surveys are a useful tool to help understand the condition of the structures before any construction work, enabling precautions to be taken in order to minimise damage, and to aid with site restoration after the work has been completed.
Dilapidation surveys provide solid written evidence to counter any fraudulent claims and liabilities, protecting the interests of all stakeholders in the event of any claims that may arise.

At Bradley-Mason LLP, we recommend that dilapidations are considered at an early stage and well in advance of the Lease end, whether we are acting on behalf of a landlord or tenant. Landlords will find it useful to know the condition of the building before the Lease expires so that the tenant can be fully notified of any works required. While some landlords prefer early implementations so that the work can be carried out and monitored for quality, others may choose a cash settlement instead. In either case, it is advisable to develop a strategic approach to facilitate the best outcome for all concerned.

For expert advice and to discuss your requirements, please get in touch.

Category: Dilapidations

Commercial Surveyor Services