Ask the Expert – Jonathan Shaw: Dilapidations – How to avoid disputes and financial loss

Failure to understand repair obligations in a lease can be a huge headache for both landlords and tenants and gives rise to dilapidations, but it can be easily avoided. Jonathan Shaw, Managing Director at Anderton Gables and a valued member of the RICS Dilapidations Steering Group, offers advice to both parties to ensure you don’t suffer.

What does the term Dilapidations mean?

Dilapidations is a specialist area of building surveying which requires a host of technical skills and legal knowledge. It is an area subject to continual development as case law can and does significantly alter the way dilapidations claims are won and lost.

Dilapidations are breaches of covenant to repair a building contained in a lease. A typical modern commercial lease will describe in detail the obligations placed on the tenant in keeping the property in good repair and decorative condition throughout the term.

Dilapidations are a complex and contentious aspect of the landlord and tenant relationship.

Why do disputes occur between a landlord and tenant at the end of a lease?

Disputes at the end of any lease can be rife, with over-zealous landlords claiming the tenant is not fully aware of what they have signed up to.  As a landlord you will want to preserve the value of your asset, whether that means enforcing the tenant’s obligation to hand back the premises in a good state of repair or by way of a payment in lieu.

Tenants on the other hand usually have a short term interest in the premises and do not want to spend any more than they have to.

Failure by either party to understand and comply with their obligations can lead to dispute and the possibility of substantial financial loss.

How can both parties reduce the risk of costly disputes

My advice to landlords would be as follows –

  • get the lease drafted to suit you and to suit the building. For example, if you want replacement carpets at the lease end, stipulate that.
  • rather than wait until the lease end, consider serving an interim schedule during the term if you are concerned about the tenant’s neglect of the building as this can cause deterioration to your asset value.

To tenants I would say the following –

  • get good pre-lease advice from a Chartered Building Surveyor and negotiate out of the lease onerous aspects. Agree a rent-free period that covers the cost of the works or agree that the landlord does these works prior to the lease commencement.
  • reduce your liability by reference to a Schedule of Condition stating you will not return the premises in any better condition at lease end than when you took it.
  • and finally plan your exit to minimise the risk of dilapidations disputes and possibly loss of rent claims if a landlord has to undertake the works post lease.

How can the team at Anderton Gables help?

Our dilapidations team provides commercially aware advice to get you the best outcome.

Whether acting for landlords or tenants, Anderton Gables is able to advise the parties at the critical stage of entering into the lease and towards the closing stages when a terminal schedule of dilapidations is served. Our aim is to provide the optimum solution on behalf of our clients through the process of negotiation.

And remember, if you don’t appoint somebody savvy maybe the other party will, and that could leave you out of pocket.

Jonathan Shaw – Managing Director & member of the RICS Dilapidations Steering Group