How To Avoid A Common Pitfall Of Renting A Commercial Property

Ian Tew, Partner at Knight Frank Newcastle, shares his expertise on dilapidations.

I’ve been working as a surveyor on behalf of both tenants and landlords for over 20 years now and I have come across all sorts of scenarios.

Moving into new commercial premises is such an exciting time. Imagine seeing your seedling of a business grow to a size where you now need your very own commercial property, or you’ve outgrown where you are and need something larger. Would you be thinking about repairs to that building in five years’ time? Of course you wouldn’t. But you should be.

When you leave a commercial property you are expected to pay for or deal with any defects or disrepair noted against the terms of your lease. These are what are known as dilapidations.

A hefty dilapidations bill at the end of your lease is the stuff of nightmares. But the good news is, it doesn’t have to be that way. There are some simple things you can do to mitigate unwanted and unplanned-for costs.

Before the lease: –

-Think about the age and condition and the state of disrepair at the start. A surveyor can help you establish the condition and advise what work is needed to fix the disrepair.

-Do your sums. How much will the repairs cost that need doing prior to occupation ?

-Be aware that a Full Repairing Lease (FRL) often requires a tenant to repair an element whether it was in repair, or not, at the start of the lease. The date you move in is often not as relevant as you think.

-If there is disrepair then ask your solicitor to limit the repairs via the wording of the lease.

-If the property is not brand new, then always, always, insist on a schedule of condition from the landlord. This will help reduce your obligations for repairs. But be aware of where this works and where it doesn’t – which is often misunderstood. For example, a schedule of condition may identify a door, where there is some deterioration at the base, which at the end of your lease is now completely rotten. It would not be possible to return the door to the condition as identified at the start of the lease and to comply with terms, the door may have to be completely replaced.

-Get advice from both legal and property professionals.

During the lease:

– Do your best to keep on top of maintenance. Service the boiler, get a glazier to replace the cracked window, repaint the windows etc.

– Be proactive and consider getting an assessment of the likely dilapidations several months before you plan to exit.

– Don’t get caught out by time – if you intend on leaving the property give yourself enough leeway to sort out any repairs.

– Put enough money aside to undertake required repairs or to pay for the financial settlement when you leave.

At the end of a lease:

– Create an exit strategy well in advance, considering your options, it may be more cost effective to do any repairs yourself but that may prove impractical because of time constraints or the fact you are still in occupation of the building.

– Ask the landlord as early as possible about their intention for the property after you leave, and their expectations. If the landlord’s intention is to redevelop, or refurbish, there may be no dilapidations liability.

– Consult a solicitor, a building surveyor and potentially, a valuation surveyor – this will undoubtedly save you money on a claim from a landlord.

– The dilapidations schedule will normally be served under the protocol set out by the Property Litigation Association and endorsed by the courts. This should be served within a reasonable period of time (normally 56 days) after the lease has ended. Make sure you follow the protocol as closely as you can. Dilapidations, unfortunately, are part and parcel of leasing commercial premises. But every lease doesn’t have to end with an eye-watering bill. With some good advice and planning, it can be dealt with successfully so that you can happily, and without hardship, move out of a property and onto to pastures new.