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An introduction to dilapidations and how you can avoid them – Part 1: Reporting & Definitions

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 look at the reports and surveys undertaken and some of the terms that are used in relation to dilapidations.

What does dilapidations mean?

“Dilapidations” refers to defects and disrepair which tenants are required to deal with or pay to have remedied when they vacate the premises that they have leased.

Towards the end of a lease, landlords may serve notice to tenants asking them to carry out specified repair or reinstatement works. This is typically produced as a list of works known as a ‘schedule of dilapidations’.

This can sometimes be contested by the tenant. When a dilapidations claim occurs, both tenants and landlords will need expert assistance to prepare detailed schedules and conduct negotiations to reach a settlement and meet all legal requirements.

Since there are frequent arguments over this point, it’s vital to have some knowledge of any future dilapidations liability and it’s important to have a record of the state of the premises at the start of a lease.

The importance of building surveys

When leasing a property, we’d always advise commissioning a survey and report before signing a lease. The type of report you may need could be a traditional building survey but often a Schedule of Condition should be appended to a lease and most tenants would also like to know of any potential dilapidations liability that may exist.

Considering this before signing a lease has the potential to save significant future costs. This will tell tenants what repairs they might face and avoid any ambiguity should a landlord request payment for work that isn’t deemed acceptable in a Schedule of Dilapidations at the end of the lease.

Which report format is best?

All types of survey involve the building surveyor undertaking a full inspection of the property but it will need to be decided which report format is required.

Schedule of Condition

For both parties, it’s vital that the condition of a building is properly recorded when a Schedule of Condition is appended to a lease. Starting with a visual inspection of the building from top to bottom, both externally and internally, it will note the present condition of the building and is a ‘snap-shot’ in time of the condition.

Simple photos are not sufficient but they are useful. The report should include a written description of the building and of all major components and elements with a written comment on the condition of each element. However, when a schedule of condition is produced it does not include dilapidations liability advice.

Dilapidations liability report

A dilapidations liability report is somewhat different to a schedule of condition. The survey starts with a desktop review of the lease. The report focuses on the lease covenants relating to repair, redecoration and reinstatement and the potential cost of works required that the tenant may be obligated to undertake based on the lease covenants compared to the current condition of the property.

A surveyor is able to outline within the report what the potential dilapidations liability cost may be based on the current condition of the property.

A combined approach

Irrespective of whether a schedule of condition or dilapidations liability report is produced many businesses prefer to see these reports combined with a traditional building survey report that ‘tells the story’ of the general condition of the building. It’s very similar to a home buyer’s report before buying a house but bespoke for the property the tenant intends to lease.

However, a survey won’t necessarily report in detail on everything. For example, the survey may not include specialist testing for environmental or hazardous materials and it is unlikely to include intrusive or long-term investigations that are sometimes recommended in these reports.

Any limitations should be agreed and documented in the report. A timescale of future maintenance and repair work, as well as likely costs, can be included in the survey. At the point where a tenant is about to sign the lease on a new property, it’s also worth asking the building surveyor to review the clauses that relate to dilapidations.

Dilapidations definitions

When dealing with dilapidations, you’re likely to hear a few of these terms being used.

A Schedule of Dilapidation

The document prepared by the landlord (or their surveyor) which lists outstanding reinstatement, repair, legal compliance and decoration items to the property, suggesting remedial works and, in some cases, estimating the cost of the remedial works.

A Quantified Demand

This is a document setting out further details of the allegations. It is prepared by, or on behalf of, the landlord and is issued after the end of the lease. This details what the landlord considers to be the likely losses as a result of the alleged breaches. This can be in addition to the cost of the works detailed in the Schedule of Dilapidation.

A Response

The reply from the tenant (or their surveyor) to the Quantified Demand and/or the Schedule of Dilapidations, this is usually a letter or an email, along with a Scott Schedule.

A Scott Schedule

An extended version of the Schedule of Dilapidations, this enables the tenant (or their surveyor) to respond to the content of the Quantified Demand and/or the Schedule of Dilapidations.

The Dilapidations Protocol

This is a document published by the Ministry of Justice setting out the courts’ expectations of the landlord and tenant about lease-end dilapidations. The protocol is available on the Ministry of Justice website.

Dilapidations is a complicated process and we’ve barely scratched the surface here.

We’ll go into more detail in future blogs but the main thing to take away here is the fact that both tenants and landlords should seek professional advice when dealing with dilapidations.

In Part 2, we’ll take a look at precisely what tenants and landlords need to consider during the dilapidations process.

If you’d like more information about how the team at TPG can help, give us a call today.

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