Viewpoint: Occupying new business premises? Planning for TDD and Dilapidations will save you time and money

Purchasing or renting a new space, whether it's office, industrial, storage, retail or leisure, can be an exciting time for any business. However, failure to plan properly can cost many thousands of pounds at the end of the lease.

Michael Jones, dilapidations expert and head of Powell Williams' Birmingham office, offers advice about how to save time and money when thinking of moving business premises.

calculator for dilaps article

First things first
It's imperative to do due diligence on the acquisition contract or tenancy agreement to avoid a big financial hit further down the road. Most business will consult a lawyer about their contract, but it's imperative to bring a building surveyor along as they'll have just the experience you'll need to really understand the liability you're taking on.

The biggest risk to a business in this instance, is forgetting about the dilapidations at the end of the lease, and it's essential to consider these future liabilities when negotiating the lease.

By taking on a lease you take on the repair liability, so it is essential to find out what the condition of the property really is at the outset - are you getting what you think you're getting, are you liable for public areas, what happens if you need to make some changes, or if the landlord wants to make changes - all of these issues can be discussed at the outset.

The term 'dilapidations' refers to breaches of lease covenants that relate to the condition of the property, and the process of remedying those breaches. The process is conducted within a legal framework with potential for expensive litigation if not carefully considered and managed and are an inevitable fact of virtually all commercial leases. Negotiating dilapidations is often adversarial, dilapidations needs to be an essential part of your business planning before signing the lease.

Technical Due Diligence Survey (TDD) offers a more in-depth inspection than a full building survey. A TDD will analyse if the property is genuinely fit for use, and can accommodate your short and long term plans. It will warn of any future cost commitments, and of any operational issues, and puts the occupier in a position to negotiate on price if it identifies something that materially affects the value of the property.

It can also identify if anything has been changed by the previous tenant without landlord's consent, for which you could unwittingly become liable.

Protect yourself, and save time and money
Insist on a Schedule of Condition as part of the lease, to record the condition of the property, on which both parties are agreed.

The incoming tenant or leaseholder generally commissions the Schedule of Condition as it can provide effective protection against having to pay for, or make good, repairs or defects which are not their responsibility.

However, it is worth nothing that not all schedules are created equal. In order to be of any value, it needs to be effectively prepared by a professional. Relying on a collection of close-up photos of defects will rarely prove useful at the end of the lease. A carefully drafted Schedule of Condition with supporting photographs will prove much more effective in the long run, but only if the person preparing it understands the dilapidations process.

During the lease term: maintain, maintain, maintain
Happily, dilapidations can be virtually eliminated by pro-active and forward planning. So by keeping up your end of the bargain with regard to repair and maintenance, with a fully budgeted programme throughout the tenancy, you could eradicate the uncertainty and potential costs of end of term dilapidations.

Dilapidations are like death and taxes
However, very few tenants get out of their premises without having to fork out anything at all. Therefore, it is wise to factor a savings scheme into the annual budget to cover those future liabilities. Depending on the scale of liabilities and the resources available, a building surveyor can provide a planned preventative maintenance service, which can assist with elements such as priority and standards of maintenance activities, setting timeframes, procurement advice, and managing and reviewing budgets and costings.

For more information, contact Michael Jones.

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