Whilst dilapidations may seem a daunting topic, once broken down, it really is rather simple.

Dilapidations can affect both tenants and landlords, but also office managers, and anybody else who may oversee the day-to-day management of a building.

With so much to consider, including dilapidations surveys, it’s important for businesses and building owners to understand how to mitigate the risk of loss.

So, let’s take it back to basics.

Here’s all you need to know about the dilapidations protocol.

What are dilapidations?

Dilapidations simply refer to the ‘exit costs’ for tenants when they come to the end of their lease.

These exit costs are allocated by the landlord in order to put the property back to its original condition, in preparation for new tenants or property sale. It is not the cost to refurbish or upgrade the property.

Dilapidations is a term used by landlords, tenants, surveyors, and solicitors and refers to a liability which requires compliance. They are often defined within a lease agreement and relate to repairs, decorations, and reinstatement of a property.

Dependent on the terms of a lease, dilapidations obligations can be met by either undertaking the necessary works, or via payment of a settlement figure.

Both landlords and tenants can be under obligation to either carry out repairs or cover the costs.

Dilapidation works can include something as simple as removing items attached to the walls to full repairs.

What is a dilapidations claim?

A dilapidation claim consists of the overall process associated with a suggested breach in lease or tenancy in relation to the condition and/or use of the property in question.

A dilapidation claim by a tenant is typically initiated during a lease. Whilst claims can also be initiated during the lease by landlords, this is more commonly seen at the end of a lease.

What is a dilapidation survey?

A dilapidation survey is conducted by a chartered surveyor on behalf of the landlord. The surveyor will assess the condition of the property, providing a detailed and thorough schedule of all works, quantified and costed, that may be required in order to return the property back to its original condition.

The surveyor should be independent and the schedule should be reflective of the terms of the lease.

What is a diminution valuation?

A diminution in value typically refers to the loss of value in the property in question.

Following a dilapidation survey, a valuation is prepared by a specialist valuation surveyor. This valuation will set out the diminution of a landlord’s property value and will set the cap on any dilapidations claim.

Dilapidations: The process

Prior to a dilapidations survey, there are a number of important pieces of information that must be acquired in order to go ahead.

So, here’s a brief overview of the dilapidations protocol.

Please note, this is based upon a landlord wishing to issue a dilapidations claim.

This includes copies of;

• The lease and any other documentation / assignments
• Any Schedules of Condition
• Licenses
• Missives and side letters
• Schedule of Landlords Fixtures and Fitting

The landlord’s intentions must also be obtained and set out, the type of schedule they require such as a terminal (at lease end) or interim (during the lease) and any other issues they would like to raise.

With this information the surveyor can then proceed with the survey.

The survey is critical and enables the surveyor to prepare the schedule which is then served on the tenant. Once served the discussions and negotiations with the tenant can begin and matters covered would include;

• Collate the tenant’s response
• Looking at undertaking necessary works
• Period for Negotiation
• Agreement and or settlement of costs

There are in the main two types of schedule and these are prepared by the landlord either during or upon expiry of the lease and are referred to as an Interim or Terminal schedule. It should be noted that the tenant could also serve and interim or terminal schedule on the landlord but this is unusual.

A Schedule of Dilapidations

Once all the information has been reviewed and the property inspected the surveyor produces A Schedule of Dilapidations which is the recognised method of recording and setting out any damage to a property during the lease term.

The content of such, splits down into component parts and sets out

• Parties to the lease
• Summary of the lease and all relevant clauses
• Repairs
• Redecoration
• Reinstatement
• Summary
• Quantified Demand

Based on the above, the chartered surveyor is able to identify any breaches of contract that are relevant to the current condition of the property.

Tenants and landlords can expect to see the following as part of their Schedule;

• Reference number
• Breach of clause reference
• Location
• Description of breach
• Remedial work required
• Cost
• Summary of claim and damages

 

When dealt with professionally, agreeing a dilapidations claim should be a simple and straightforward process.

Within each case, there is usually significant scope for landlords to maximise their claim, and for tenants to minimise it.

If you’d like help as a landlord or tenant dealing with a dilapidations claim or need more information on the dilapidations protocol and process, then get in touch today by emailing stephen@arcbuildingconsultancy.co.uk or alfie@arcbuildingconsultancy.co.uk.