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What are Commercial Property Dilapidations?

The word dilapidations gets bandied around a lot but what does it actually mean?

If we refer to dilapidations, we’re generally talking about a commercial property in a state of disrepair which is usually covered by specific tenant repair duties in property leases. Specifically, we are generally referring to a claim for terminal dilapidations which arises at the end of a lease.

Whilst there can be dilapidations in a residential property, claims are much more common in a commercial context as the costs involved can be much higher.

Sadly it is all too common for tenants to have had no or poor professional advice at the start of the lease on what their obligations are to repair the property. This often results in a shock when they discover the level of the claim at the end of the lease.

One of the biggest causes of tenants missing this essential professional advice is the very nature of a commercial property tenant. The tenant will often want to snap up a property in a prime location quickly, which is generally leasehold. They will have their own commercial pressures in terms of needing to keep advisory costs down and avoid prolonged downtime while they look for a new property.

Landlords and their agents often don’t help by adding additional pressure on the tenant to take the commercial property quickly and introducing documentation containing “standard terms”. Strange as it might sound, the most important time for both landlord and tenant in dealing with disrepair at the end of the lease is actually before the lease is even signed.

 

Does the documentation do what you need it to do?

Step one: Be clear on what parts of the property the tenant is taking on. This can avoid issues further down the line.

  • Are the lifts part of the property or are they a ‘common part’ shared by others?
  • Does the roof form part of the property?
  • How about the car park/yard?
  • Has the landlord specifically agreed to maintain any part of the property?

The scope of the tenant’s duty to repair the property at the end of the lease will usually coincide with the physical extent of property they occupy but there may be exceptions. It’s vital both sides, but particularly the tenant, are comfortable with what the tenant is taking responsibility for (called the “demise”). Do not assume.

If a whole building is leased, the tenant’s repair duties will usually cover the whole building. The tenant will be directly responsible for carrying out the repairs and bear the cost. If the lease is for part of a larger property, the tenant will usually be responsible for repairing the part they occupy. It’s also common for the Lease to make the tenant indirectly responsible for the cost (or a proportion of the cost) of making repairs to the structure, exterior and common parts of the property through the service charge.

You might think that the area the tenant is responsible for would be clear from the plan – but that’s not always the case. Once the lease is completed it is generally too late to start questioning whether or not the plan is accurate – and we have seen some shockers!

The importance of getting professional, specialist advice in negotiating and preparing a lease cannot be overstated.

 

Step two: Disrepair or No Disrepair?

The starting point is the wording of the lease. Whilst they may look similar, not all sections covering repairs mean the same thing.

For example, “put and keep in repair” means that even if the property was dilapidated to start with, the tenant may be obliged to return the commercial property to the landlord in a far better state than when they took it on at the start. If the words “and condition” have been added it can extend the tenant’s liability.

If the tenant has concerns about the state of the property they should consider agreeing works for the landlord to do. These can be incorporated into the lease. Alternatively a ‘schedule of condition’ can be used – meaning the tenant does not have to hand the property back in a better condition than it was at the start of the lease.

 

Redecoration

A point sometimes overlooked is redecoration, which is often a requirement within the last few months of the lease. Arguably, if there is a redecoration clause it will need doing again, even if the paintwork is in pretty good (but not perfect) condition. Breaches of a redecoration clause are often brought within a dilapidations claim but they are considered separately in terms of the potential for a statutory cap on a dilapidations claim.

 

Reinstatement

A tenant may feel they have made huge improvements to the property with any authorised alterations. However, if the property would let easier without those changes, most landlords will require the tenant to return the property to the original layout. This is usually a common right in commercial property leases.

Likewise, Landlords will sometimes miss a requirement to request that items are removed. If the lease requires the landlord to give notice at a particular time and they miss the date, the landlord may be stuck with the tenant’s alterations.

 

Key points for landlords and tenants on dilapidations claims

  • What is the standard of repair required – is the landlord asking too much or the tenant offering too little?
  • Is there a cheaper way to meet that standard of repair – can the roof be patched rather than replaced?
  • Is the item of disrepair even the tenant’s responsibility?
  • Does the statutory cap (“Section 18”) apply? Look out for our follow up article on that point!

Follow the link to the Ministry of Justice website for more information on how a dilapidations claim should progress.

 

For advice on dilapidations and disrepair obligations, please contact specialist commercial property disputes lawyer Dan Harley on 0115 9 100 295 or click here to send an email.

Posted on January 23, 2020

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