Commercial tenants are required to hand back commercial premises in a good state of repair and decoration at the end of a commercial tenancy. This can be a requirement even if the property was not in a good state when the tenant took it on.
Where the landlord is not satisfied with the condition of the property at the end of the lease, they have the option of making a dilapidations claim to recover money from the tenant, to enable them to carry out the works necessary to rectify the situation.
Schedule of dilapidations
In making a claim, the landlord will start by having a surveyor prepare a schedule of dilapidations. The schedule will set out the costs of repairs, maintenance and redecoration and might also include other issues, such as failing to keep statutory safety documentation up to date.
The tenant will often be asked to pay not only the costs of the works, but also the landlord’s legal fees, the surveyor’s fees, as well as compensation for any rent lost while the works are carried out. The landlord may seek to enforce their right to payment for dilapidations by taking the claim to court if it is not settled amicably.
What to do when a schedule of dilapidations is received
The figure requested on a schedule of dilapidations can be alarming, but it is usually possible to negotiate with a landlord or their solicitors to try to reduce the amount claimed and settle the matter by agreement.
The tenant can usually employ their own surveyor to assess what works are needed and the appropriate costs.
An expert commercial property solicitor will be able to closely examine the lease and identify whether any part of the claim exceeds the landlord’s rights.
This information will form the basis of negotiations and it is often possible to substantially reduce the initial amount requested.
Dilapidations FAQs – five commonly asked questions about dilapidations
1. How much can you claim for dilapidations at the end of a commercial lease?
An expert dilapidations surveyor will include the full cost of restoring the premises in their dilapidations survey. It is also open to a landlord to claim for loss of rent and compensation for the tenant’s failure to maintain up to date safety documentation.
2. Are dilapidations payments subject to VAT?
A dilapidations payment was formerly considered to be a payment in settlement of a claim and not for the supply of a service, which meant that VAT was not traditionally charged. However, HMRC have indicated that they consider that a payment, even when made as compensation, should be liable for VAT if the original supply agreement was liable for VAT. It is therefore recommended that expert advice is sought to ensure that the correct VAT position is established when dealing with dilapidations claims and payments.
3. What is included in dilapidations?
Any disrepair or defect which breaches the terms of the lease can be claimed for in a dilapidations schedule. This can include: repairs, maintenance, reinstatement, decoration and works to comply with legal requirements such as electrical safety certificates.
4. Where can I read the dilapidations in my contract?
The lease will contain clauses setting out what is required of the tenant. Ideally, the lease will also contain a condition schedule giving evidence of the state of the property at the time the tenant took it over. This should prevent the tenant from being required to hand back the property in a better state than when they took it on.
5. When should I issue a schedule of dilapidations?
A schedule of dilapidations can be issued at any stage of the term of a lease where it is apparent that the lease is being breached in respect of the condition of the property. A schedule issued during the lease period is referred to as an interim schedule of dilapidations or a repairs notice. A schedule of dilapidations is commonly prepared and served at the end of the lease term, when the tenant is leaving the premises.
Contact our dilapidations solicitors for specialist advice
At Witan Solicitors we represent landlords and tenants across a range of sectors. We can advise you in respect of dilapidations and work to resolve disagreements on your behalf. when dealing with dilapidations, it is important to work with experts who understand the process and who can negotiate robustly on your behalf. Our commercial property team have a good track record in dealing with both making and defending dilapidations claims.
For more information, please refer to our page on commercial property disputes.
If you need advice on dealing with dilapidations, please email us at info@witansolicitors.co.uk or fill in our contact form and we will be happy to help you. We have offices in London, Birmingham and Northampton.
