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.
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.
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
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.
A 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
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
Insist on a Schedule of Condition as part of the lease, to record
the condition of the property, on which both parties are
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
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
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
For more information, contact Michael Jones.