The world of commercial property is complex at the best of times and when you are coming to the end of a lease the complexities and legal wrangling can increase substantially. A property that you have looked after over the entire term of your tenancy has suddenly been declared as not meeting the original conditions of the lease and your landlord, or their solicitors, have sent you a large bill for the work required to put the property back into an acceptable condition.
This can often come as a shock and can cause some real issues for the future viability of the business, especially if the organisation has not put any money aside for potential dilapidations claims. This happens throughout the country on a daily basis and it falls onto building surveyors to help both landlords and tenants to build up a suitable price for dilapidations based on the conditions of the original lease conditions.
What are dilapidations?
Dilapidations is the term used to describe a breach of lease covenants relating to the condition of the leased property either during or at the end of the lease. If the landlord believes that a tenant is in breach of their contract, in terms of dilapidations, they will prepare a ‘Schedule of Dilapidations’ to lay out all the work that is required to be completed before the end of the tenancy agreement. Quite often this is provided just a list without any pricing details, although in some cases the estimated price of completing all the work will be included.
Following the completion of the lease, if the work detailed in the Schedule of Dilapidations has not been completed, the landlord will issue a ‘Quantified Demand’. This is the next stage of a dilapidations claim and provides a figure of what the landlord deems their losses will be as a direct consequence of the contractual breaches. This cost is often different to the total cost that the work would be as it can include loss of earnings from not being able to lease the property.
It is at this stage that a response is generally sent from the tenant laying out their position on both the Schedule of Dilapidations and the Quantified Demand. This comes in two stages, although they are both usually sent together. First is a ‘Response’, generally regarded as a letter or email that includes a ‘Scott Schedule’ – an extended version of the Schedule of Dilapidations with the tenant’s response for each section. Once the response is sent, this is the time that both the landlord’s and tenant’s surveyors will meet to work out a settlement figure, if this is not achievable or rejected by one party then the tenant could face further litigation.
How can surveyors save tenants money?
Throughout the entire dilapidations process both the landlord and tenant should appoint a chartered building surveyor to prepare and review all documents relating to the dilapidations claim. A tenant of a commercial property should always expect to receive a Schedule of Dilapidations as their lease is set to expire and if a Schedule is not received, it does not mean that there is no risk of a potential dilapidations claim. It is generally expected that all documents should be produced by a chartered surveyor on behalf of their client, due to their expert knowledge in commercial properties and the costings involved in putting everything right.
It is this expertise that can ultimately save a tenant money on dilapidations, especially if the claim is a large amount. It is best to involve a surveyor at as early a stage as possible – ideally before the lease expires and a Schedule is provided. This is because the surveyor will be able to assess the property in use and guide a tenant through the entire process.
Most cost savings are made when the two parties surveyors meet to agree a suitable settlement, at these meetings the ‘real world’ costs are discussed and include discussions about work that would naturally be completed by a future tenant when they complete their fit-out and branding. These common sense approaches mean that a former tenant can see their dilapidations reduce significantly from the original Schedule that was issued. The knowledge that a chartered surveyor can bring is invaluable in these situations and having a common sense approach to what work is required and by whom.
Dilapidations are a key part of the commercial property world and utilising the expertise of a chartered surveyor can pay dividends when approaching the end of a lease. Their experience in negotiating dilapidation claims and thorough knowledge of the commercial property world put both the tenant and landlord in a position that allows the condition of a property to be upheld without any substantial loss to either party.
Article provided by Bradley Mason, a Chartered Building Surveying practice offering a full range of building consultancy and project management services throughout the
