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Dilapidations at end of lease

Dilapidations are the costs to the tenant of putting a property back into repair, including reinstating tenant’s alterations, at the end of a lease. There appears to be an increase in disagreements between landlords and tenants about dilapidations. This is believed to be linked to leases generally becoming shorter in term, in which case any degradation to the property during the currency of the lease is harder to justify.

In almost all cases a commercial tenant will have an obligation in its lease to return the leased property to the landlord in the condition and standard of repair dictated by the lease during its term and on expiry. If you are tenant looking to vacate the property at the end of a lease’s term, here are five key points:

  1. Check the lease and the lease plan so you understand what actually comprises the leased property. Cross-check the way the property is described in words in the lease. Where you are leasing the entire building there may not be so much of an issue. However, in a multi level or multi-let environment, it pays to be clear.

  2. Take a look at your lease to see whether your liability is linked to a “schedule of condition” or inventory of some kind agreed at the commencement of the term. This is potentially a list or may also be or include images. It should provide the information you need on the minimum standard of repair to which the property should be returned.

  3. Generally speaking, the obligation to repair means remedying any defects in the property by renewing or replacing parts of it.  It does not require the tenant to make improvements or renew or replacing the whole of the property. It should be noted that the contractual requirement to “to keep in repair” imposes an obligation on the tenant to “put” the property into repair. In reality this may mean putting the property in a better state it was in compared to when the tenancy commenced.

  4. At the end of the term it is possible that a landlord may make a claim for damages for dilapidations after the property is returned to it. If the landlord brings a claim of this nature, the damages may be for the cost of any required rectification works and potentially also for loss of rent while the works are being performed. It is a good idea to keep records of the state the property is left in by taking photographs to provide evidence to deal with any such claim. These may show that works are not required.

  5. Attempt to resolve any potential issues in a reasonable and appropriate period of time before the end of the lease. Contact your landlord so that you can have a reasonable dialogue about it, based on an objective assessment of the property. Where you have doubts, it may pay to consult a solicitor or a property surveyor.


 

Mr. San Chima
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