06 Sep 21 by James Vowles
Dilapidations and exit costs
What dilapidations and exit costs can you expect on your rented property?
As a tenant you have the responsibility to adequately maintain and keep the property in repair. The repairs required at the end of a commercial lease are referred to as ‘dilapidations’ and can include:
• Full reinstatement back to the original layout
• Statutory covenants
Dilapidations and exit costs issues occur when tenants are found to be in contravention of their leasehold obligations, which can be lengthy, costly, and contentious processes. There are also many misconceptions regarding dilapidations, particularly where a tenant believes they have undertaken improvements to the building, but the Landlord and their agent do not consider the works to be improvements.
The Covid -19 crisis may result in you reviewing your property requirements, if you are thinking of either serving notice or not renewing your lease you need to consider the following in relation to potential dilapidations liabilities:
1. Timings are key. If you are thinking of leaving the property, allow sufficient time before the end of your lease to plan your exit strategy.
2. Review your current lease and have a strategy in place to comply with the lease covenants.
3. Part of your strategy may be to undertake all, part or no works but a reasoned strategy must be considered to determine if this is viable as part of your exit plan
4. If you are to undertake works, they must be undertaken to an industry approved standard so check before you commission any works.
Dilapidations are a complex area and there are many ways in which we can assist with your strategy for dilapidations.
• We can provide an initial dilapidations assessment report, undertaking a review of the lease and survey of the property to identify breaches of the lease covenants and the potential costs of remedial works.
• We can assist with devising your exit strategy, undertaking an analysis of not just the costs of the works and additional costs such as double rent but other factors such as timescales for vacating, whether you should undertake works on the premises or whether it would be better to agree a cash settlement with the landlord.
• Our valuers can undertake a Section 18 Valuation, which provides a statutory cap for damages, by calculating the difference by which the value of the landlord’s interest has been reduced on account of the breaches of lease covenant. This is otherwise known as the ‘diminution in value’ of the landlord’s interest.
• If you plan to undertake the works, we can put together a specification and tender the works required and administrate the contract on site to ensure that the works being undertaken are to the required standard.
Dilapidations is a complex issue and does not involve just the cost of works but also associated landlord costs incurred. There are many potential methods for mitigating the dilapidations claim and Vickery Holman can provide an initial assessment and then assist you with your strategy moving forward. For help with your lease, please talk to our Lease Advisory team.
We have a highly experienced building surveying team and you can contact us here