As one of Bradley-Mason LLP’s specialist areas, we have developed a strong client base for a variety of Tenants from individuals to SME’s and large corporate companies dealing with all aspects of their Dilapidations on a national basis. Whether acquiring new premises, offering advice during occupation or developing a strategy for closing a site we find that our detailed understanding of Lease documents and Dilapidations practice ensures that Dilapidation costs are minimised and the risk of any legal dispute avoided.
WHAT IS A SCHEDULE OF DILAPIDATIONS?
A Schedule of Dilapidations is a document which a Landlord would prepare either during or after the end of the Lease to identify the works which they consider a Tenant should undertake or should have undertaken under the Terms of their Lease. This can be issued in a variety of ways including an initial opinion on the works the Landlord will require before the end of the Term through to a more formal Terminal Schedule of Dilapidations or Quantified Demand which will be issued after a Lease has expired. At this stage, a Landlord would be making a formal claim for damages for breach of the Lease, which is a form of contract.
RICS GUIDANCE
There is no prescribed way in which a Landlord should notify the Tenant before the end of the Term although guidance is provided in the RICS Guidance Note for Dilapidations in England and Wales 7th Edition. When the Lease has ended the Landlord should comply with guidance laid down in the PLA Dilapidations Protocol otherwise they could be penalised in Court when costs were awarded.
A Schedule of Dilapidations is usually in a tabular format which identifies why a Tenant has breached the Lease and the works which the Landlord considers are required. It may include the Landlord’s estimated cost for the works required.
View our Tenants Dilapidations Case Studies
DOES A LANDLORD HAVE TO SERVE A SCHEDULE OF DILAPIDATIONS?
Unless there is specific requirement in a Lease a Landlord does not have to serve a Schedule before the end of the Term. Whilst most Tenants would prefer guidance from their Landlord to the works they should undertake there is usually no legal obligation to notify a Tenant. It is often in the Landlord’s interest if they do not actually want a Tenant to complete the works and would prefer to make a claim for a breach of the Lease terms once the Agreement ended. A Landlord may however have to notify a Tenant of any reinstatement required if dictated by the Lease, although there is no specific time frame as to what is “reasonable”.
WHAT IS A DILAPIDATIONS ASSESSMENT?
A Dilapidations Assessment is a Report produced to assess a Tenant’s Leasehold liability of the property they occupy. It firstly reviews the Lease documents to establish the Tenant’s obligations under the Lease. A survey is undertaken to assess the condition of the building and establish how the property has deteriorated and what works are required to comply with the terms of the Lease. The Assessment outlines the works which are considered necessary and includes an estimated cost of the works needed to undertake the relevant repairs, reinstatement and decoration.
Dependent upon what your Lease states the Tenant must do the required works to put the property back into repair; or agree a sum with the Landlord to cover the cost of the works. You may have a full repairing Lease or internal repairing obligation only and you may also have a Schedule of Condition appended which will limit your liability. The Assessment will explain what you are liable for and the costs of doing these works or reaching an agreement with the Landlord. The Assessment can be undertaken at any time during the Lease, although would typically be prepared within the last year of the Term when a Tenant is considering vacating the premises.
PORTFOLIO OF PROPERTIES ACROSS THE UK?
We have extensive experience in preparing Dilapidation Assessments which are then used as a basis for negotiating Terminal Dilapidation settlements with Landlords or agreeing works to be implemented by the end of the Lease. We have undertaken several large portfolio assessments where our clients are looking to rationalise their property portfolios. For example, we surveyed 103 out of town retail units for a client within 6 weeks as part of a specific project to rationalise their estate. These reports formed the basis of various Lease surrenders, assignments and Lease end negotiations and formed a significant element of this major rationalisation of our client’s business.
IS A DILAPIDATIONS BUDGET NEEDED WITHIN YOUR ACCOUNTS?
Many Tenants need to put a provision within their Company accounts to budget for future Dilapidations. Your Accountant may suggest a figure is budgeted, particularly if you have agreed to a specific obligation when you leave a building, for example, to remove your fitout or redecorate the property at the end of the Lease term. An assessment can predict the future costs and ensure that you are complying with accountancy practice and have a realistic budget in place. Read More
CAN A TENANT UNDERTAKE THE WORKS?
One of the main decisions any Tenants must take is whether to implement the works needed before the end of the Lease or attempt to agree a reasonable cash settlement. When working with our clients we consider a wide range of factors applicable to each scenario and develop a strategy which best suits. In some instances, a client may want to trade from a store until the very last week of the Lease in order to maximise revenue. This may outweigh any savings made by implementing the works.
In some cases, a site could be empty and there is ample opportunity to implement the works over several weeks and ensure these are completed to the Landlord’s satisfaction. In some cases, the Landlord may not be registered for VAT and by implementing the works a Tenant saves the VAT element which a Landlord can claim. By taking control of the works a Tenant can save other costs such as a Landlord’s Surveyors fees, a claim for loss of rent and interest on costs. They can also ensure they fully tender the works to obtain best value and are not faced with arguing a single cost presented by a Landlord. Under
Dilapidations practice it is the Tenants decision how a repair item is undertaken and unless this fails to meet the terms of the Lease it can often be more cost effective than the method chosen by a Landlord.
DOES A TENANT HAVE TO UNDERTAKE ALL THE WORKS?
A Tenant may not decide to do all the works. With many of our clients they decide to implement the more significant items for example stripping out their fixtures and fittings, repairing the roof and implementing the most significant items and leaving some items for negotiation. In some cases, an incoming Tenant may undertake their own fit out and would not be concerned if a property had been fully decorated or repaired. Hence this gives a Tenant control over certain elements and allows negotiation over items which could be challenged.
DOES THE LANDLORD HAVE TO ACCEPT THE WORKS?
When implementing works the Tenant must however precede with caution as if it is not undertaken to an adequate standard the Landlord will often challenge the quality of workmanship and the methods of repair. We are often brought into a dispute where a Tenant considers they have undertaken extensive works and none of the works have been accepted by a Landlord. We therefore recommend you seek professional guidance at an early stage if you are considering implementing the works and ideally enter into open dialogue with your Landlord to ensure they agree the works as they progress.
WHAT IS A DILAPIDATIONS RESPONSE?
The Landlord often prepares a Schedule of Dilapidations before the end of the Term and serves on the Tenant so they can complete the work. A Tenant may be unsure whether they are liable for all the works and whether there are any alternate ways of implementing the repair? A Dilapidations Response Report would consider a Landlord’s claim in detail, analyse the terms of your Lease and advise on whether the Landlord’s claim is reasonable. Budgets can be provided for the works or the Landlord may accept a cash settlement as an alternate means of satisfying the terms of the Lease. The Response Report would form part of initial negotiations with the Landlord or their Surveyor which would allow either works to be agreed and implemented before the Lease has ended, or enter into initial dialogue over a possible settlement.
If the Landlord’s claim is issued after the end of the Lease then the Schedule would often take the form of a Scott Schedule and this would form part of negotiations. Under the PLA Protocol a Tenant has 56 days in which to issue their Response to the Landlord and there would then be a period of negotiation where each party comments on the others Response. The intention of the Protocol is to encourage settlement without progressing to a legal claim however in some cases a dispute arises and we can act as an Expert Witness should the claim progress to Court.
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