An introduction to dilapidations and how you can avoid them – Part 2: Tenants & Landlords

Posted in: Property Services

There are certain terms that we as building surveyors and consultants take for granted because we use them on an almost daily basis.

We thought we’d start to demystify a few of these terms and put together an introduction to what they mean and how they affect business owners.

Since we act for both landlords and tenants, regularly providing dilapidation liability reports and advice to occupiers, we thought we’d start with all things dilapidations.

In Part 1, we looked at the reports and definitions relating to dilapidations. In Part 2, we take a look at the implications for both tenants and landlords.

Things a tenant should consider

There are two sides in every dilapidation claim. Let’s take a look at the tenant’s perspective.

Before signing a lease

Tenants should familiarise themselves with the terms of a lease and its dilapidations implications before signing a contract. Always commission a building survey report.

During the lease term

You should budget for any potential future dilapidations liability during the term of your lease.

All alteration works carried out to the premises are likely to result in the landlord requesting that the alterations are reinstated before the lease ends.

Near the end of the lease

Be aware of the extent of dilapidations work you are liable for. At this point, it’s advisable to use the expertise of a building surveyor who is experienced in dilapidations.

Unless all of the building work you are liable for (as required by the signed lease) has been completed, the landlord will now send a Schedule of Dilapidations. The landlord may also serve a notice to reinstate any alterations made during the lease.  It is important that you give a copy of the documents-received to both your solicitor and building surveyor so that they can advise you accordingly.

If dilapidations works are not complete before the end of the lease term, a landlord can claim damages for the adverse financial position they may find themselves in. The Quantified Demand should show details of this.

Landlords should not profit from dilapidations payments so the amount set out in the Quantified Demand may be less than the one in the Schedule of Dilapidations. This could be because the landlord is planning to redevelop the property, or because a new tenant wants the premises left as they are.

For this reason, it may be difficult for a tenant to decide whether to complete the work before the end of the lease or wait for the landlord to send a Quantified Demand.

After the end of the lease

Tenants should receive a Schedule of Dilapidations and, within about 56 days after the end of the lease, a Quantified Demand.

A response is expected within 56 days of receiving them and it should be endorsed by the tenant or a surveyor.

Things a landlord should consider

Timing is important for landlords. Here’s what they need to keep in mind.

Before the end of the lease

Landlords may need to serve Notices on their tenant in order to give them time to reinstate any alterations made to the property during the lease. It is advisable to seek the advice of a building surveyor and your solicitor long before the lease ends.

After the end of the lease

Generally, a Schedule of Dilapidations and a Quantified Demand is issued within about 56 days after the end of the lease term.

A building surveyor is usually asked to prepare a Schedule of Dilapidations on the landlord’s behalf using an industry standard form. Before this, the surveyor will ask what the landlord’s intentions for the property were on the date the lease ended. This is so that the surveyor can endorse the Schedule, which is a requirement of the Dilapidations Protocol. The landlord’s answers must be honest and full since it may be reviewed by a court at a future date.

The Schedule of Dilapidations will normally set out the cost of the works which the tenant should have completed. Because the amount a landlord is claiming should not exceed their likely loss, the Quantified Demand can sometimes be set at a lower figure.

If the tenant’s breaches of the terms of the lease have not caused the landlord to suffer any loss, these items cannot be included.

A tenant now has 56 days to send a Response from the date they received the Quantified Demand and/or Schedule of Dilapidation. This must be endorsed by the tenant or their surveyor and will set out any disputes they might have.

Dispute Resolution

At the point where the Schedule of Dilapidation, Quantified Demand and Response have been exchanged, if there are any disputes the tenant’s surveyor and the landlord’s surveyor will meet to narrow the differences and recommend a settlement figure.  There are a number of other factors surveyors consider during negotiations and we’ll focus on those in a future blog.

If a settlement is not possible, a tenant may face potential litigation from their former landlord. The Dilapidations Protocol states that parties in dilapidations cases should consider alternative dispute resolution (ADR) before going through the courts.

Hopefully, this has given some insight into dilapidations, which can be a complicated process.

Look out for more blogs on the subject coming soon. In the meantime, if you have any questions that relate to the topics we’ve discussed, feel free to get in touch with the team at TPG.