A Layman’s Guide to Dilapidations: Understanding Your Liabilities as a Commercial Tenant

When leasing a property, it’s essential to understand a term that often catches commercial tenants and landlords off-guard—dilapidations. 

Put simply, dilapidations refer to any repairs or maintenance required to return a property to the condition as set out in a lease agreement. If you’re a commercial tenant or prospective commercial tenant, understanding your dilapidation liabilities can save you considerable stress, money, and potential disputes with your landlord. 

This guide will walk you through the basics of dilapidations, proactive steps to take during your lease term, and why professional advice is a wise investment.

So, what are dilapidations? dilapidations refer to any repairs or maintenance required to return a property to the condition as set out in a lease agreement. If you’re a commercial tenant or prospective commercial tenant, understanding your dilapidation liabilities can save you considerable stress, money, and potential disputes with your landlord

Read on to learn how proactive dilapidations can save you tens of thousands of pounds, and a lot of stress. 

What Are Dilapidations?

In property leasing, “dilapidations” usually refers to issues of disrepair or deterioration of a leased property that a tenant is responsible for addressing. These could be related to structural issues, interior maintenance, or even aesthetic factors. When a lease ends, the landlord may issue a dilapidations claim if the property isn’t returned in the agreed-upon state. This could lead to significant costs for the tenant, so being proactive is key.

Understanding Tenant Liabilities with a Pre-Lease Building Survey

Before entering a lease, it’s helpful to assess the property condition and clarify your maintenance and repair obligations. Nearly every tenant will take advice from a solicitor during the process, which is often invaluable and ensures you’re covered from a legal perspective, but won’t necessarily take into the condition of the property itself and the obligations as to repair, reinstatement, statutory and decoration. This type of advice is provided by a dilapidations specialist, typically a chartered surveyor.  Many tenants opt for a pre-lease survey or a dilapidations assessment, which provides a snapshot of the property’s condition and highlights any existing issues.

What Are the Benefits Of a Pre-Lease Survey?

The main benefits of a pre-lease survey include:

• Identifying current property condition: This allows you to negotiate and potentially limit your repair responsibilities for pre-existing issues.
• Understanding your lease terms better: Lease agreements can be complex, but a professional surveyor can help clarify what maintenance responsibilities fall on you.
• Strategic negotiation: Negotiate lease terms with a view to limiting or removing elements of your lease terms which are likely to become costly in the future.
• Estimating future costs: Knowing what’s required can help you budget for potential repairs or negotiate for certain obligations to be the landlord’s responsibility.
• Future proofing and maintenance strategy : Planning ahead against maintenance spend to take into elements which will also fall within your lease liabilities, providing justification for expenditure and ensuring costs are accommodated within operational budgets.

In the long run, investing in a pre-lease building survey may save substantial amounts in unexpected dilapidation liabilities. 

Why Being Proactive About Dilapidations Benefits Both Tenants and Landlord

Being proactive throughout the lease can benefit both tenants and landlords. For tenants, it ensures that they remain compliant with lease terms and can budget for repairs over time. For landlords, regular property upkeep maintains the property’s value and helps prevent extensive, costly repairs at the lease’s end.

For Commercial Tenants:

• Cost Management: By addressing minor repairs throughout the lease, tenants avoid a large dilapidations bill at the end.
• Avoiding Disputes: Clear communication and compliance with lease terms prevent friction with the landlord and facilitate a smoother lease-end process.

For Commercial Landlords:

• Property Value Retention: Regular upkeep protects the asset value.
• Minimized Vacancy Gaps: A well-maintained property can be quickly re-leased without the need for extensive repairs, reducing vacancy time.

When to Seek Professional Advice During Your Lease Term

Engaging a surveyor or property advisor at strategic points during the lease term can help ensure you’re on track with maintenance obligations. Here are a few key milestones:

1. Lease Inception: Conduct a pre-lease survey to understand existing property conditions and potential liabilities.
2. Mid-Term Review: If the lease spans several years, consider a mid-term dilapidations assessment. This is especially valuable for long leases, as it gives you a chance to address any accruing repairs and set aside appropriate funds in the event of an exit requirement.
3. Prior to Lease Expiry: Engage a surveyor around 6–12 months before the lease end date to review the property’s state and assess any necessary remedial work. This helps you plan and budget accordingly.

Professional advice at these stages can ensure compliance with lease terms and a clear understanding of any maintenance obligations.

Timeline of the Typical Dilapidations Process

The dilapidations process typically follows these steps:

1. Lease Expiry or Nearing Expiry: The tenant and landlord discuss property condition and potential dilapidations liabilities.
2. Serving a Schedule of Dilapidations: If the landlord believes the tenant has repair obligations, they may issue a Schedule of Dilapidations, outlining items needing repair or replacement. This usually happens toward the end or at the end of a lease.
3. Tenant Review: The tenant reviews the schedule and may engage a surveyor to ensure the claims are accurate and justified.
4. Negotiations: Both parties negotiate on the items listed, costs, and required standards.
5. Settlement or Repairs: The tenant either undertakes the repairs or agrees to a financial settlement with the landlord to cover the dilapidation costs.

How Professional Advice Ensures a Fair and Reasonable Dilapidations Process

Professional advice is invaluable in ensuring a smooth, fair dilapidations process. A property surveyor can:

• Evaluate Claimed Repairs: They ensure that the items on a landlord’s schedule of dilapidations are valid and fall within the tenant’s responsibilities.
• Negotiate Costs: Surveyors can often negotiate fair costs for repairs or argue for a reduction if items listed go beyond what’s required by the lease.
• Assist with Compliance: Professional guidance helps tenants understand and fulfill their obligations without paying for unnecessary or inflated repairs.

Engaging professionals early helps mitigate the risk of inflated claims and ensures both parties follow best practices for a fair outcome.

Get Expert Advice From Fourth Wall

For commercial tenants, dilapidations may sound like a complex area, but it’s simply about managing property responsibilities throughout a lease term. A pre-lease building survey or mid-term dilapidations assessment provides a clearer picture of what’s required. By staying proactive, you can prevent end-of-lease surprises and manage costs effectively. Key to this process is professional advice; surveyors and property advisors not only help you meet your obligations but also ensure that the dilapidations process remains fair and reasonable.

Taking these proactive steps provides peace of mind and strengthens the tenant-landlord relationship—making dilapidations a more manageable aspect of property leasing.

To book a free lease review, arrange a call with our expert Chartered Surveyors here: https://calendly.com/survey-fourthwallbc/survey-consultation