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It can
come as a nasty shock towards the end of a lease (or even after) when the landlord requires
extensive work from the tenant to remedy damage or disrepair or to put the
premises back in their original state if the tenant has made internal
alterations. If the tenant does not carry out this work, he or she may be
required to pay the cost of having it done.
As a tenant you may be able to challenge the landlord's list
of required repair work, referred to as a schedule of dilapidations. But to be
in a strong position to mount a challenge you need to consider the dilapidations
question right at the outset of the lease with the help of your Chartered Surveyor.
What are dilapidations?
The term is normally used to cover defects or disrepair which you as tenant will
be required to deal with or pay to have remedied when you vacate the premises
that you have leased.
When do I need to start thinking
about dilapidations?
Before you take a lease. A survey will establish the condition of the premises,
giving an indication of work that may be needed, both immediately and later. If
the premises are already in bad repair, special considerations apply (see
below). During the term of the lease, regular or planned maintenance can avoid
greater expense later.
What if the premises are in a poor
state at the outset?
Most commercial leases require the tenant to put and keep the property in
repair (even if the lease clause seems to say 'keep'). Unless you and the landlord specifically agree otherwise, the fact that
the premises were in a poor condition when you took them on is irrelevant - you
still have to put them right. So negotiate for a lower premium or a lower rent
to compensate for costs that you face.
Alternatively, persuade the landlord to agree that the
premises be returned at the end of the lease in a condition similar to the state
in which you took them. In this case, after you have had the premises surveyed,
make sure that the condition is established, recorded and attached to the
lease as a "schedule of condition". This is best undertaken by your
Chartered Surveyor, agreed with the landlord and appended to the lease.
When is the landlord likely to submit a
dilapidations claim?
Generally speaking, landlords do not serve dilapidations claims earlier than
three years before the end of the lease. If you, as tenant, have a statutory
right to a new lease, the landlord probably will not serve a dilapidations claim
unless or until you indicate that you are unlikely to renew your lease
What is the position on alterations I have
made?
This depends on the terms of the lease and any licences that the landlord
granted you to make alterations. On granting consent for alterations the
landlord probably required that at the end of the lease you restore the property
to its original state if requested to do so.
Therefore, unless the landlord thinks your alterations have
added value, you will probably be required to reinstate the property at the end
of the lease or pay the cost. The exception is if neither the lease nor the
licence for alterations gives the landlord the option of requesting
reinstatement.
Do I have to accept the landlord's
dilapidations claim in full?
No, do not accept it without taking professional advice from your Chartered
Surveyor. The cost may be
inflated or the claim may include items which are not valid items of disrepair.
And possibly the landlord may not in fact intend to repair the property; he or
she might plan to demolish it. In this case you would have a good defence at law
to the claim.
What if I cannot reach a compromise with
the landlord?
If you cannot reach agreement, the landlord has recourse to the court. But this
is a slow process and expensive for both sides. Landlords will generally avoid
it if they can. Consult your solicitor as well as your chartered surveyor if
things look like taking this course - in a court hearing your chartered surveyor
will be able to act as an expert witness on you behalf.
Costing schedules of dilapidations
23 November 2001
Bart Woodhouse
Bart Woolhouse of the RICS Building Surveying Faculty comments on costing
schedules of dilapidations.
A schedule of dilapidations will need to be costed if it is anticipated that the
tenant’s obligations it describes are to be met by way of a payment in damages.
We should remind ourselves that a schedule of dilapidations is a statement of
breach of contract which may ultimately be actionable in law and needs therefore
to be accurately and properly drafted. If the costing exercise needs to be
undertaken this is therefore integral to that process.
How many surveyors instructed to act on behalf of tenants in defending the
damages claim for dilapidations could refer to instances where the landlord’s
surveyor has blatantly over priced individual dilapidations items (as well as,
in such instances, most likely overstating the various breaches of contract and
remedies required)? Whilst the landlord’s surveyor, once opening negotiations
with his opposite number, may well concede (on a without prejudice basis!) that
an additional factor has been included in his prices “for negotiating purposes”
this is clearly inappropriate.
A schedule of dilapidations should be priced with due reference to reliable and
appropriate cost information which is available from a number of sources, for
example (i) current Building Cost Information Service data and other recognised
priced books (to which the appropriate regional variations should be applied);
(ii) relevant and recent tender price information (on projects of a similar
nature and size and envisaged by the claim); and (iii) the result of a
competitive tender exercise (which should be conducted on the basis of a full
specification of works derived from the schedule of dilapidations).
Where no firm prices have been obtained for the works (as is most often the
case) it may be appropriate to use a combination of the information identified
at (i) and (ii) above. Prices should be derived on the basis of a recognised
rate which is applied to either quantity or area as appropriate in much the same
manner as if the surveyor were preparing a cost appraisal for the client based
on a building works specification. Clearly, there will be occasions where the
extent and nature of the works required may not be fully known and in such cases
it is sensible to apply a reasonable budget cost in much the same manner as one
would set aside a provisional sum in drafting a specification. It is however
desirable to avoid doing this wherever possible as the degree of objectivity
applied in deriving such figures will invariably be open to question.
There can be no doubt that the best way of substantiating the true measure of
the cost of the works is as a result of a competitive tender exercise as
identified at (iii) above. This would be strongly indicative of the intent on
behalf of the landlord to actually proceed with work and in such cases it may be
advisable to defer a definitive damages statement until the works are actually
complete. This is because very often additional works which are legitimately
attributable to the outgoing tenant’s obligations may arise during the course of
the contract thus increasing the claim. However, the landlord’s surveyor should,
in providing recommendations to his client, balance this eventuality against the
commercial advantage of obtaining an early damages payment from the tenant
rather than having to wait (in most cases) many months or perhaps longer for a
definitive claim statement to be compiled.
For larger and more complicated claims it may well be advisable for the surveyor
to recommend to his client that the services of a quantity surveyor be engaged
to complete the pricing process, the cost of which should normally be
recoverable as part of the costs of preparing the schedule (assuming of course
that the lease allows for this).
Whatever method is adopted, it is important that the approach is consistent and
the prices derived are reasonable.
Download The Protocol for Terminal Schedules of Dilapidations (Adobe PDF
file)
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