Most commercial tenants will encounter dilapidations during or after a lease, as landlords look to restore their properties to the condition they were in when the lease began. Martin Smith, building consultant, explains what dilapidations are and what as a tenant you need to know.
“Tenants are often unfamiliar with the process and their responsibilities, including the reversal of alterations made to bars and restaurants, and repair and maintenance of the building itself.
“Landlords can therefore recover costs incurred to repair and reinstate the property after the lease period ends. This includes the cost of work required to remove fixtures, fittings and aesthetic touches added by tenants, which can be significant and subsequently reduce the capital tenants can spend on new ventures.
“The introduction of the new RICS dilapidations guidance in December 2016 aims to improve the way dilapidations are handled. It outlines detailed responsibilities for both tenants’ and landlords’ surveyors to make the process fairer and quicker and can therefore be useful for both parties.
“Landlords must prove any work forming part of the claim has actually been carried out. If not, a diminution valuation, under s18(1) Landlord & Tenant Act 1927, can be used to prove the loss in capital value of the property and defines the maximum value of any landlord’s claim.
“In both situations, full consideration of the cost of works and the diminution value will show any fair and tangible loss suffered and facilitate a smoother process at the end of a tenancy, for both landlords and tenants.
“Tenants should ensure they are aware of their responsibilities regarding obligations for reinstatement following alterations, together with general repair and maintenance obligations, before signing any lease agreement.
“During a lease term, liability can also be established by a chartered surveyor, who can provide advice on anticipated dilapidations liability and what limitations might apply to the landlord’s claim under s18(1).”