Dilapidations

Whether from a Landlord or a Tenant’s perspective, Dilapidations may be regarded as either maintaining the value of an investment or minimising what can be a hidden yet substantial cost of occupation. In either case early representation by a specialist surveyor is essential.

Landlords

Landlords may commission Schedules of Dilapidations for a number of reasons including:

To require a tenant to repair the premises during the term of the lease
To require the premises to be returned in good condition at the end of the lease, or to be adequately compensated for the tenant’s failure to do so
Other reasons including to ‘assist’ in Landlord & Tenant negotiations, surrenders and break clauses, where forfeiture is being considered or where a claim is to be made against a bankrupt tenant’s assets.

The preparation of a schedule of dilapidations should not be seen in isolation and should form part of a strategy for achieving the Landlord’s objectives – which will often mean advising the client as to what these objectives may reasonably be.

bspm service:

Agree and confirm instructions.
Review documentation including Lease, Licences, etc.
Inspect and record condition and breaches of covenant.
Advise need for and co-ordinate specialist surveys (e.g. M&E).
Provide costs for items included in schedule (where monetary claim to be made) and prepare statement of claim.
Advise in respect of dilapidations strategy including service and enforcement.
Liaison with client’s legal advisors.
Negotiation of schedule and claim with tenants or their surveyors.
Monitoring work carried out by tenants.

Basis of Fees

Preparation of Schedules are typically charged as a fixed fee.

Where tenant’s carry out the works resulting from the schedule of dilapidations, agreeing the extent and monitoring those works is usually charged on a time taken basis.

Negotiation and settlement of monetary claims without litigation usually charged as a percentage of the claim.

In the event that settlement cannot be reached by negotiation, additional services required for matters relating to potential litigation are charged on a time taken basis.

Tenants

Tenants have different objectives to Landlords when it comes to maintaining buildings, the primary concern usually being for a building to provide a place to conduct business. Maintenance expenditure must compete with other investment and decisions are often made in isolation of the contractual obligations arising under the lease. A dilapidations claim may be unexpected, both in timing and value, and may have a serious impact on a business. Expert advice is essential.

The first step in limiting a dilapidations liability is to be properly advised before entering into the lease. A Building Survey will advise on the liability being inherited, considering the physical condition of the building and the proposed covenants to repair, decorate and reinstate.

During the term of the lease the tenant may have statutory protection to defend against a landlord’s schedule provided immediate action is taken. Quick action may also be required to guard against further enforcement of the claim by the Landlord.

At the end of a lease a Landlord may make a claim for damages in lieu of dilapidations where works are not completed by the lease end. Such claims may include landlord’s fees, VAT and loss of rent and therefore tenants should obtain early advice to determine a strategy for dealing with dilapidations at lease end. Planning for, and effective management of, dilapidations should form part of a tenant’s decision to renew or vacate and a dilapidations assessment can be carried out to estimate potential liabilities in advance of the end of the lease.
bspm service:

Agree and confirm instructions.
Review documentation including Lease, Licences, etc.
Inspect and review Landlord’s schedule.
Advise need for and co-ordinate specialists (e.g. M&E).
Advise in respect of dilapidations strategy and action required.
Liaison with client’s legal advisors.
Negotiation of schedule and claim with Landlord’s surveyors;

Basis of Fees

General dilapidations advice is usually charged on a time taken basis. Incentive fees for the negotiation and settlement of monetary claims may be agreed where appropriate, details depending upon individual circumstance.

In the event that settlement cannot be reached by negotiation, additional services required for matters relating to potential litigation are charged on a time taken basis.