Commercial Property Lease

In the excitement of taking on a new commercial property lease, too often business owners give little consideration to the dilapidation clause in the lease. This can have serious consequences when ending the lease, particularly if it’s done at a time when the business is struggling financially and needs to save money. What are the issues? What can you do about it?

When you first take on new business premises, you’ll probably want to carry out alterations so that they’re adapted for your use (e.g. Instal internal partitioning or company signage). To do that you need to ask for a Licence for Alterations. You then need to keep the premises in a good state of repair and to redecorate the premises as often as necessary. The lease will typically require you to return the premises to the landlord in a good lettable condition, including decorating it within 3 months of the lease ending. If you fail to do so, then you could receive a claim for dilapidations from the landlord.

When preparing the Schedule of Condition, the landlord’s surveyor will start from the premise that the property was in a good and lettable condition at the start of the lease and that the wear and tear to the property was as a result of the tenant’s occupation of the property. They will not consider the state and condition of the premises when you took them on (as they would with a residential let).

The Schedule will be very detailed. It will include scuff marks to the walls and paint work, stained carpeting or floor coverings, water damage to ceilings, etc. Against each item the surveyor will give an estimate of the likely costs of the repairs for the damage. This may well run into tens of thousands of pounds, even for modest premises.

Once you receive the Schedule, you’ll need to instruct a solicitor to represent you. Your solicitor will then instruct a surveyor to inspect the premises and prepare a rebuttal of the landlord’s schedule. There will then be a negotiation between your and the landlord’s surveyor. An agreement is then reached, either to a monetary settlement, or an agreement as to what works need to be carried out, to be paid for by you. This agreement will be put into writing by solicitors.

You will then get a large bill for the cost of the dilapidations, solicitors fees and surveyor fees. We’ve seen this run into tens of thousands of pounds for quite modest premises.

What to avoid

It is therefore in your interests to avoid this happening and that requires action from the time you consider taking the lease:-

Prepare and agree with the landlord a detailed photographic “Schedule of Condition”. This should be annexed to the lease when it is granted. Ensure that the lease states that, when the lease ends, the premises need not be put back into a better state and condition than evidenced by the Schedule of Condition.
Six months before the lease ends speak to the landlord and try to get an agreement on what works the landlord requires you to do prior to the end of the lease and to what standard.
Get the landlord to inspect the works, when they’re completed, and address any additional requirements in terms of repair and decoration.
Take a detailed photographic record of the state and condition of the premises when they are handed back to the landlord.

Get a good, specialist solicitor to review your lease, before you take it on, to ensure it’s fair. That could save you tens of thousands of pounds. With dilapidations, as with most things in life, prevention is better than cure. It is worthwhile spending time and money on the repair and redecoration of the premises prior to the end of a lease, rather than fighting dilapidations claim.

By Steve Cook, Commercial Property Associate at Parfitt Cresswell