As you near the end of your commercial lease, your landlord or their surveyor is likely to inspect the condition of your leased building and send you a Schedule of Dilapidations. This will detail the works required to ensure that you comply with your lease, along with cost estimates for completing the works.
When you or your business receives a Schedule of Dilapidations, you have a choice to make.
You can complete some works to comply with your lease, reach a financial settlement with your landlord, or take a combined approach whereby you complete some works and settle financially for others.
Which path you choose will depend on your specific circumstances.
Here, our expert dilapidations surveyors at Harrison Clarke explore your options, and the pros and cons of each.
This article applies only to where your landlord has sent a Schedule of Dilapidations before your lease ends.
If you receive a schedule of dilapidations after lease end, we can still help but you are likely to be limited to negotiating a financial claim at that point.
The principal benefits of completing the work yourself are that you will be in control of the costs and, if you carry out the works before lease end, any dilapidations claim after the lease has ended is likely to be significantly lower, meaning that your cost liability should be settled more quickly.
When you review the cost estimates presented in the Schedule of Dilapidations, you may think that you can complete the works more cost-effectively yourself, either by finding a lower-priced contractor, or as a DIY project.
Many dilapidations claims are settled in this way, as it avoids paying for a specialist surveyor.
However, you might be surprised to hear that completing the works yourself can often be the most expensive way to deal with dilapidations.
This is because it might not actually be necessary for you to complete all work detailed on the Schedule of Dilapidations.
Specialist dilapidations surveyors like the team at Harrison Clarke can highlight these points to your landlord, dramatically negotiating the claim down on your behalf in most cases.
We recommend that you watch our video on assessing dilapidations losses to understand this process.
A potential drawback of carrying out the work yourself means you have responsibility for the quality of the work. If the work is completed to a poor standard, the landlord might need to redo the work, incurring further costs which they could pass on to you.
And, don’t forget, if you decide to complete works yourself, you will need to do so during the lease term, as you will have no right of access to the building once your lease has ended.
The alternative to carrying out the work yourself is to negotiate a financial settlement with your landlord.
Whilst you could negotiate with them direct, we would recommend that using a specialist dilapidations surveyor to negotiate on your behalf is most likely to save you their fees multiple times over.
Dilapidations is a complex area of law and it could be the case that, if you negotiate a claim yourself, you will end up giving away more than you need to, for a number of reasons.
When negotiating a settlement with a landlord, you should consider circumstances beyond the lease itself, such as whether the building will be repurposed or otherwise altered by a landlord in a way that mean breaches of the lease will not cost the landlord money.
For example, if the landlord plans to remove a wall, there is no justification in you incurring the cost of redecoration even if it was a stipulation in your lease.
If you use a skilled and experienced dilapidations surveyor, they will quickly identify any flaws in a landlord’s claim, and can use these to negotiate down the claim.
Recently, we have been able to save several clients 90-100% of the value of the original landlord’s dilapidations claim. Of course, although this is a common result, we cannot promise this for every client.
The principal benefit of negotiating a dilapidations claim is that, depending on the exact circumstances, it could be the least expensive way of dealing with your dilapidations liability.
Negotiating a financial settlement rather than completing the works yourself also means that you are free to concentrate on your business, rather than being distracted by arranging and supervising building works.
Something to consider about taking this route, however, is that if your landlord takes care of the works you may not know your exact settlement figure until months or even years after lease end. The implication of this could be that you may not be able to commit funds elsewhere until the claim has been settled.
Taking advice from an expert dilapidations as early as possible would make sure that you have as much information as possible about your potential financial liability.
Do be careful who you go to for advice, though. A lot of building surveyors who offer dilapidations advice actually only have a light touch of understanding dilapidations. Using a non-specialist surveyor could be a costly mistake, so make sure you do your research and choose a surveyor who can prove their track record and expertise in this area.
You might have started to complete some works before taking advice from a dilapidations surveyor, or you might have run out of time to complete the works before lease end.
You might even have completed all the works and still received a residual claim from your landlord.
This wouldn’t be an issue, as any claim remaining after you have completed works can be negotiated with your landlord by your dilapidations surveyor.
If you have in-house resources to complete works significantly more cost-effectively than the landlord is estimating, it might make sense to carry out these works in-house rather than pass on the profit margin to another company.
The pros and cons we have outlined earlier in this article still apply here, but proportionately, depending on the amount of work completed and the amount of claim which needs to be negotiated.
No matter how good your relationship is with your landlord during the term of your lease, it could still be difficult to negotiate a dilapidations claim informally, as your interests are no longer aligned.
In a word of caution, parties to a lease can sometimes take the conflict of a dilapidations claim very personally, particularly with smaller landlords and tenants, which might not be a great experience to go through.
Also, coming to an informal agreement with your landlord might not be a level playing field, as they will often be a seasoned property professional. Just like any other business arrangement, it is important to take independent advice, as any advice given by your landlord could be significantly balanced in their favour.
Depending on what you agree, you could be committing tens of thousands of pounds for no apparent benefit to you or your business, so we recommend that you treat this as any other business transaction, and complete proper due diligence by taking specialist advice.
This might result in some short-term relationship strain, but your bank balance will thank you.
We always advocate that tenants should take advice from a specialist dilapidations surveyor around six to 12 months from your lease end date.
This will give you plenty of time to weigh up your options and arrange any building works if necessary.
Everyone’s circumstances are unique. We have a team of expert and highly experienced dilapidations surveyors who can confidently and knowledgeably negotiate your dilapidations claim, hopefully saving you a substantial amount of money.
If you would like to talk through your dilapidations situation, please get in touch.
We have a range of videos talking through various surveying services, including negotiating dilapidations claims. You can access them via our website or our YouTube channel. If your query is not covered in our videos and blogs, please don’t hesitate to get in touch.
We would be more than happy to help you.
Call our friendly, expert and highly qualified surveyors on 023 8155 0051, or email us at info@harrisonclarke.co. We would welcome the opportunity to help with any queries or needs you may have.
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Tim set up Harrison Clarke Chartered Surveyors in July 2017 following a series of public and private sector surveying roles, having previously worked for the University of Cambridge, Rund Partnership, Goadsby, and CBRE.
Tim has degrees in building surveying, construction project management, and business administration.
