28 Mar 23 by Dennis Venn
The green agenda is affecting all aspects of commercial real estate and dilapidations is no exception. Our Building Surveying team deal with dilapidations regularly and with the increased interest in ESG issues, there is a feeling that more could be done to be environmentally conscious.
ESG and Dilapidations
The original intention of dilapidations was to repair what was already in place, but most landlords and tenants opted for what seemed a safer approach, which was to remove or rip out everything at the end of the lease.
With more interest in upcycling and recycling, that approach is clearly wasteful. We’d like to see more landlords and tenants having a discussion about what the landlord or new tenants intend to do, and agreeing what repairs are appropriate in light of future intentions.
In our own instance, when we vacated our long-term office in central Plymouth a few years ago, we suggested to the landlord that they ask the new tenants if they’d like to retain the configuration containing two meeting rooms with a removable partition between them, rather than us simply return the space back to the original open plan format. They did want to retain the meetings rooms, so simply talking to the landlord and agreeing a more sustainable and efficient exit worked for everyone.
With some landlords planning to carry out work to get their EPC rating improved to a minimum of an E, it may not make sense for a tenant to carry out remedial work as part of their exit, that won’t improve the EPC rating so will have to be re-done by the landlord.
Quite apart from the ESG factors, a tenant should be aware of the implications of making good and reinstating the premises at the end of the lease. A tenant often thinks that their alterations and adaptations are an improvement to the property and the landlord will benefit from such improvement. An improvement/betterment for one person is not always of any merit to other and can be a hindrance to another tenant; for example installing a mezzanine might increase the net floor area and be useful for occupiers with a large office/storage of small items, it is a detriment to users wishing to store larger items or have free space for manufacture.
Tenants need to be mindful when making alterations to the heating, insulation and adaptations which may affect the EPC as many leases now incorporate specific clauses in relation to affecting EPC ratings.
Much depends on how the lease has been structured and this may be where we see some big changes. Landlords and tenants need to build in enough time for tenants to carry out repairs, and they also need to build flexibility into leases to encourage improvements and continued investments into the building especially around its efficiency and value.
As always, these matters can be complex and we recommend talking to one of our surveyors about your own circumstances.
Vickery Holman are the leading property consultancy in the South West, with around 80 people based out of offices in Bristol, Exeter, Plymouth and Truro. Our services include commercial agency, building surveying, development, investment, property management, business rates and lease advisory. We also have the largest team of RICS Registered Valuers in the South West for secured and non-secured valuation work.