How to avoid a large dilapidations bill when vacating a commercial property
One of the most contentious points of vacating a commercial property can be the dilapidations bill which the tenant faces at the end of the lease. We take a look at some simple measures you can take to ensure you don’t get stung when you leave.
The answer lies in planning ahead. Even before you have signed the lease you should be examining its dilapidation clauses to understand exactly what you will be responsible for at the end of it. A qualified chartered surveyor will be able to explain in detail what the clauses entail and how you can limit your potential liability and prevent a worst case scenario. This is particularly important if the building you are about to occupy is already in need of repair and may require significant investment from you to bring it up-to-date or to convert it to your own purposes.
To avoid a substantial dilapidations bill at the end of your tenancy, many chartered surveyors advise that you draw up a Schedule of Condition (SOC) before signing a lease. This will record exactly what condition the property was in before you occupied it, backed up with photographic and written proof. If the landlord agrees with appending this to the lease he or she is then implicitly accepting that the property will be returned to that state after the lease has finished.
You should budget for any potential dilapidation costs during your tenancy to ensure that, if the worst comes to the worst, you are able to pay for the repairs your landlord requires. Experts recommend that you set aside at least £15 – £20 per square foot of the rental property, or a year’s rent. The implications for not budgeting mean that if you are faced with a large repair bill and cannot pay it, you may be unable to break the lease and face not only legal expenses but also continued outlay for rent. On the plus side, repair costs are an expense which can be included in your profit and loss calculation, and therefore they can be written off against tax.
Be aware that a landlord can also impose an Interim Schedule of Dilapidations clause into the lease which he or she can serve at any time during your tenure.
About six months before your lease is due to finish, your landlord will issue you with a Schedule of Dilapidations, detailing the work he or she requires you to complete before the lease is up. This usually means that you will be asked to reinstate any alterations you have made, make any repairs which are necessary and restore the property to ‘good order’. If the landlord feels that you have not completed your obligations he or she may issue a Quantified Demand, which is a claim for damages.
In many instances, the case does not go to court, as your surveyors and your landlord’s surveyors can go through a process of negotiation to arrive at a settlement figure acceptable to both parties. However, if you and your landlord are then unable to agree, you could face potential litigation, although a process of Alternative Dispute Resolution (ADR) is recommended within what’s called the Dilapidations Protocol before reaching that stage.
Our team of highly-qualified and -experienced chartered surveyors can offer both tenants and landlords advice and guidance about every aspect of drawing up a lease with specific regard to dilapidations, as well as putting together a Schedule of Condition, to avoid contentious and costly law suits at the end of a tenancy. If you need more information, please talk to a member of our team.
Written by: Ian Harrington on Wednesday 01/02/2017