Top Ten tips for landlords - Dilapidations at lease end

During the economic downturn, lease end dilapidations disputes increased as claims were more vigorously contested by tenants seeking to exploit the effect that weak demand for business space had upon the level of damages sought by Landlords. As the economy gradually improves this is set to continue, with occupiers seeking to relocate due to expansion or rationalization of their business space, lured by incentives from competing Landlords.

Michael Jones, Partner at Powell Williams' Birmingham office, offers ten concise tips to help Landlords obtain the best outcome from the dilapidations process at lease end:

1. Maintain working relationship - Either directly or through a managing agent, maintain a working relationship with your tenant throughout the duration of the lease. Make sure you have an awareness of the condition of your building during the currency of the lease and don't leave it until the end of the term.

2. Be proactive - With your consultants be pro-active and devise a clear strategy of your options for the premises approximately 12-18 months before the end of the lease. Is the building to be retained in its current, albeit repaired form, or is it to be modernized or significantly altered or even demolished? Each of these variables could impact upon the level of any subsequent dilapidations claim and will have to be declared in accordance with the pre action protocols "statement of truth".

3. Early Dialogue with Tenant - Consider whether it is in the Landlord's interest to open dialogue with the Tenants and their advisors as early as possible. Powell Williams LLP generally suggest that Terminal Schedules of Dilapidations should be issued within the last six months of the lease, however the more complex the issue, the sooner the dialogue should be opened and the schedule issued.

4. Importance of accurate documentation - Before commissioning the preparation of a schedule of dilapidations, ensure you gather all occupational documents, leases with coloured lease plans, license for alterations and supporting documentation, schedules of condition and colour photographs if available etc. Supply to consultants prior to them proceeding with site inspections.

5. Mitigate Loss - Seek to minimize any void following lease end, which can be attributable to the condition of the building. This is best achieved by serving the schedule of dilapidations on the Tenant in sufficient time for them to remedy the disrepair following consultation between the parties. If a cash settlement is to be agreed then instruct your building surveyor to competitively tender the repairs ready for a start on site as close to the lease end date as possible.

6. Commercial Value - As the end of the lease approaches, be aware of the commercial value of the building and, at this time, take advice on how its condition impacts upon value.

7. Realistic expectations - Be realistic in your expectations for the value of the settlement to be achieved. Dilapidations should not be seen as a funding vehicle for significant refurbishment, upgrading or redevelopment works. Inflated claims with an eye on negotiation would not only be counterproductive, but also risky for the Landlord, should the matter proceed to litigation.

8. Supercession - Keep your dilapidations surveyor in the loop if you are proposing any upgrade or alterations of the premises, which would render valueless items of repair identified within the schedule of dilapidations. e.g repairs to a suspended ceiling when the Landlord proposes to strip out and replaced with a more modern installation. Under these circumstances damages cannot be claimed for this item.

9. Rent frees - If rent free inducements are to be offered to prospective tenants then these should be scheduled to reflect the cost of building works undertaken to remedy items of disrepair and not rent free incentives merely to attract a letting.

10. Summary -Dilapidations is not a licence to print money, but by appointing the right team, being proactive and devising the right strategies, then the best outcomes can be obtained.

For further information or advice, contact Michael Jones by emailing or by calling 0121 486 2657.

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