Dilapidations are the actions required to repair a commercial property to the standard as required by the lease. When a tenant takes on a lease they agree to repair the property to that defined standard. Most leases include a covenant that requires the tenant to return the property to the landlord in a “state of good repair”. A mistake that many tenants make is to assume that a “state of good repair” is the condition in which they took occupation of the property. As it is the lease that provides the overriding legal requirements, it may be that the tenant has to return the property in a better condition than when the lease commenced. This means that the current tenant may have to put right items inherited from the previous tenant.
To help avoid this situation a tenant can negotiate a Schedule of Condition before taking on a lease. A Schedule of Condition is appended to the lease and is a record of what the property was like when the lease was agreed. By agreeing a Schedule of Condition the landlord is accepting within the lease that the tenant will return the property to the condition in which it was received.
Many tenants don’t realise that during the term of the lease the landlord can serve a Schedule of Dilapidations which requires the tenant to put the property in repair at any time. A landlord can also serve a tenant with a “Jarvis v Harris” notice to allow the landlord to enter the property and carry out the repairs and recover the costs. To help avoid these scenarios it is good practice to plan and budget for ongoing repairs during the term of the lease. This can allow for the identification of potential problems before they occur and reduce the impact of a Final Dilapidations Schedule when the lease comes to an end. It is also worth noting that tenants are often obliged to allocate reserves for dilapidations in their accounts under accounting rules.
At the end of the lease tenants should anticipate that a landlord will seek to secure a Final Dilapidations Schedule which will reflect the works needed to meet the standards as set out in the lease. A landlord is also entitled to a sum for the loss of rent during the time of repair. In many cases a landlord can also recover his costs for drawing up a Final Dilapidations Schedule. As a result it is always advisable for a tenant to agree the state and condition of the property with the landlord before vacating the property in order to avoid such costs.
There is legislation and case law in place that seeks to create a balance between the landlord’s interest of ensuring the property remains in a good condition and the tenant’s concern over being presented with a large bill for dilapidations. However when negotiating a lease or dealing with dilapidations it is always advisable to obtain specialist legal advice.