When a lease comes to an end, landlords commonly make a financial claim against commercial tenants. For some tenants, this can come as a shock as the financial sum can be substantial. More informed tenants, often those who have experienced a similar situation before, may be familiar with certain steps they can take in order to mitigate or reduce a dilapidations claim.
Prior to lease end
In advance of lease end, preferably 12 months or so beforehand, tenants should ask their landlord to prepare a schedule of dilapidations. Alternatively, tenants can arrange for their own surveyor to prepare an itemised list of works required to reduce their dilapidations exposure. Asking a landlord to provide a schedule means the tenant will understand what their landlord wants them to do, meaning the views of both a landlord and a tenant can be aligned from an early stage.
Once a landlord has provided a schedule of dilapidations, a tenant should ask their own specialist dilapidations surveyor to review the received schedule to consider whether the works set out are reasonable. If areas of the claim are found to be unreasonable, the tenant’s surveyor will be able to explain to the tenant why. A breach of a lease clause does not automatically mean a landlord will suffer loss. For more information on this, please refer to a separate article we have published on the matter.
Dependent on the tenant’s surveyor’s advice, it could be that completing necessary works is deemed the most suitable method of addressing dilapidations, or negotiation could be seen to offer the most likely route to dealing with dilapidations in a cost-effective manner.
If a tenant, upon taking professional advice, decides to complete necessary works themselves to address any breaches of a lease, a tenant should set out to arrange the works in a timely manner. Doing so and planning to cease use of the premises prior to lease end, will allow the relevant contactors access and sufficient time to work on the property.
The cost of lost time in occupying a property can sometimes be offset by potential savings made in commissioning building work, as in this scenario, a tenant could keep control of costs more effectively. This is a fine balance, but it could work to the tenant’s advantage is some situations.
It is important for tenants to remember that construction work is guided by various different legislations, such as the Building Regulations, but also other requirements such as the Construction (Design and Management) Regulations 2015, which relate to construction health and safety.
A business completing construction works will almost always attract additional duties relating to health and safety. Most tenants will lack the expertise to discharge these duties and must appoint their own principal designer or CDM adviser – this can add cost and complexity to the completion of dilapidations works.
A tenant must factor in a contingency sum and time, as even the best planned building works can run over budget and programme. A landlord has no obligation to allow a tenant to continue completing building works after the end of a lease. Doing so can attract additional liabilities for the tenant, which could even mean the continuation of a lease. This may require a tenant to pay another three or more months’ rent following lease end, if not properly advised. This risk should be discussed with a specialist dilapidations surveyor, and is especially salient in a break situation. If a tenant is breaking their lease, it is essential that they take good quality professional advice.
Partially completing dilapidations works can complicate dilapidations claims, so ensuring works can be completed on time is beneficial. Most dilapidations surveyors will have the expertise to help you manage the work.
Negotiating a claim
When there is uncertainty about the future of a building, negotiating a claim without having completed any works can be most cost effective. Uncertainties may arise from situations where a tenant thinks their landlord will look to redevelop or convert the property after a lease has ended, or because market conditions have changed since the commencement of a lease.
The reason for this is that landlords will have difficulty in making a financial recovery if they are unable to prove their loss. Skilled dilapidations negotiators will be able to identify areas of a claim that has not led to a loss and remove these from the claim. They can also help a tenant to submit a well-aimed offer to settle, which can often be more cost effective than completing the works themselves.
When a landlord completes dilapidations works, this is normally completed in a natural void period, which can mean that a tenant can make beneficial use of their premises up until the end of a lease, adding value back to the tenant as they can be using their premises to continue their business while paying rent
Negotiations can take place while the tenant is still in situ, and it is possible to reach a dilapidations settlement prior to lease end. While this is uncommon, this is the result of proactivity on the tenant’s part and can give certainty around the cost of exiting a property.
I’m a tenant, which route is right for me?
The best route to preparing for lease end depends on several factors, including the situation between a landlord and tenant, the nature of a property, and the wording of a lease. This article provides a broad overview of the options available, and as always, we recommend taking timely advice from a specialist dilapidations surveyor who can guide you to the right solution.
How do I find a specialist dilapidations surveyor?
Here at Harrison Clarke, we have a team of specialist dilapidations surveyors who are well versed in preparing for lease ends. For advice on how to best prepare for a claim, please do not hesitate to contact our surveyors at Harrison Clarke by calling 023 8155 0551. We look forward to speaking with you.
We also have a range of videos talking through various aspects of the Party Wall process. You can access them via our website or our YouTube channel.
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