RB Surveyor Services are experts at handling dilapidation matters. In the past 6 months alone we have acted on dilapidations instructions totalling more than £3.75m. However, many people misunderstand what dilapidations means. In this blog we are breaking it down into easy chunks, so everyone can gain a brief understanding of what is dilapidations, what you need to do and options available to limit exposure to expense and risk.
Simply put, dilapidation is defined as; the state or process of falling into disrepair, but in property terms, dilapidations are breaches of lease covenant relating to the condition of property during the term or at lease expiry.
Dilapidations claims should cover the loss which will be suffered by the landlord following a tenant’s failure to comply with the lease covenants. The overriding principle being that the Landlord cannot claim more than the ‘loss’ which will be suffered.
An ‘Interim’ or ‘Terminal’ schedule of dilapidations will often be served following a property inspection by a chartered building surveyor, highlighting breaches of the occupational lease. Typically, an interim schedule is served during the lease term, identifying elements of disrepair which will cause further deterioration to the Landlord’s asset or those which are in breach of statute.
A Terminal Schedule is typically served within the final months of lease term, however RICS Dilapidations Protocol dictates that these can be served at any point within the final 3 years of the term. It will identify works that the occupying tenant should have undertaken to comply with its lease covenants and includes repair, reinstatement, redecoration and legal compliance items.
The remedial works required to achieve compliance are set out within the terminal schedule of dilapidations. These are then costed and form part of a claim, which is served on the tenant within 56 days after the lease has ended.
Careful interpretation of the lease covenants is required as these will dictate the inclusions within a dilapidations schedule and the professional fees which may be recoverable.
What to Do When A Dilapidation Schedule is Served
When a dilapidations claim is served, you should take care to read through the document carefully. Whilst tenants have the option to engage with the landlord (or their surveyor) direct, the experience and knowledge of a chartered building surveyor can be invaluable. In most situations, you will benefit from the expertise of a chartered building surveyor who can talk you through the minutiae and explain your options.
Once you or your chartered surveyor have gained a full understanding of the dilapidations claim and works required, negotiations will take place in accordance with the Dilapidations Protocol with the aim of reaching an amicable and swift agreement.
Dilapidations negotiations can often be a protracted process and it is at this point where a chartered surveyor will set out a strategy with a view to bringing matters to a conclision.
Should You Do the Works or Agree to a Cash Settlement
In most cases, carrying out the works yourself will result in a reduced financial impact as the method of repair chosen to remedy the breach may be more cost effective and it will also allow you to take more control over the situation.
If the lease has expired then you will no longer have the right to undertake the works and a financial settlement may be the only option available. Having knowledge of relevant case law, being experienced in reviewing and interpreting lease covenants and understanding the principles of Section 18(1) of the Landlord and Tenant Act 1927 can be crucial when negotiating a dilapidations claim.
Ways to Limit Exposure and Risk
Some leases may require tenants to deal with defects which existed before they took occupation of the premises or remove the former tenants alterations, fixtures etc., so dealing with dilapidations is not always as simple as returning the property to its original state. If you are looking to limit exposure to dilapidations costs from the outset, it might be wise to consult with a chartered surveyor prior to signing a lease as a photographic schedule of condition may be a necessary means of limiting your dilapidations liabilities.
During your tenancy of the building, it is important to weigh up potential dilapidations claims that could arise and set aside a reasonable financial provision to avoid risking your business. A dilapidations liability assessment can assist tenants to plan for an exit strategy and set funds aside which can be used as part of a financial settlement or to fund the works required to comply with their reparing obligations. A chartered building surveyor can help in this situation.
If you have any further questions about dilapidations claims, or if you are seeking dilapidations advice for one of your properties, please do not hesitate to get in contact with us. RB Surveyor Services are well-versed in dilapidations negotiations; if you would like to read more about one of our most successful jobs, you can read our blog on Negotiating a Dilapidations Settlement.