Owner-occupiers have an option whether or not to maintain their premises. Lease Tenants do not. The landlord’s core business may be his property and he will want to ensure that the premises are kept in a well-maintained condition. Therefore, the landlords’ surveyor may well be instructed to visit the building and view its condition either during or at the end of the lease and produce a Schedule of Dilapidations.
The object of such an inspection is to see if the premises are being kept in a condition required by the lease. The wording of the lease is therefore critical. Many tenants may not be aware that, irrespective of the condition of the property at the start of the lease, they may be required to put their building into good order and maintain it in that way.
This repairing obligation may, however, be limited by the specific wording of the lease or by a Schedule of Condition attached to it. The purpose of a Schedule of Condition is to record the condition of the property at the start of the lease in order to limit the repairs that the landlord can request.
The Schedule needs to form an integral part of the lease and be referred to in it. A qualified Building Surveyor who understands the implications of commercial leases should prepare the Schedule of Condition and both the landlord and the tenant should sign it. It is simply not sufficient for a new tenant to photograph the premises at the start of the lease, hoping that this will limit his repairing obligation.
Philip Campbell, director at Lambert Smith Hampton’s Oxford office explains: “Dilapidations is a minefield for most leased building occupiers. I am still concerned by how many tenants are surprised by the extent, and more importantly, the cost of dilapidations. Too often leases are drawn up and signed without a qualified building surveyor inspecting the premises for the tenant. I am sure that tenants are advised at the start of the lease, by their solicitors, to take professional advice with regard to their repairing liability. I am equally sure that most tenants see this as an unnecessary cost and therefore do not have the survey done. With hindsight I believe most would agree that they should have”.
“Many tenants seem to be completely unaware of the extent of their liabilities and can simply not accept that defects present before the commencement of their lease have become their responsibility. By having an Assessment of Potential Dilapidations Liability produced prior to signing a lease a tenant is able to identify areas where expenditure may have to be made to maintain or repair the fabric of the building as required by the covenants of the lease.”
“Having to deal with dilapidations at the lease end, usually within a given time scale, impacts on the business, and it is not the best way to run a successful organisation. In addition the costs incurred by defending a dilapidations claim can be high and therefore impact greatly on the profitability of a business.
With professional advice at the start of a lease, many such problems could have been avoided.” Philip goes onto say: “Depending upon the length of lease remaining, schedules of dilapidations can either result in the tenant having to undertake works to their premises or agree a financial settlement with the landlord. The financial settlements can also include legal and surveyors fees, loss of rent claims and the need to pay additional service charge and insurance payments after the end of the lease term.” “Dilapidations law is no respecter of the size or financial standing of an organisation and large national and multinational companies are at as great a risk as smaller independent organisations. I have recently been involved with claims ranging from many hundreds of thousands of pounds down to four figure claims and all would have had a substantial impact on the profitability of the organisations involved.”
