If you have anything to do with managing the property of your company or business you'll probably have heard of dilapidations. If not, then simply knowing that a substantial sum of money could be due to your landlord when you vacate a property at lease expiry, based on its condition, will stand you in good stead.

An extensive understanding of the subject is not required if you have consulted a specialist dilapidations surveyor and are making sufficient financial arrangements for your lease expiry. But if you haven’t, you might be about to add your story to the long list of cautionary tales we come across all too regularly.

As a very rough guide you could easily expect a dilapidations liability to amount to an additional year’s rent or approximately £15-20 for each square foot of the space you occupy, though it's often a lot more. And while it is also true that it could amount to very little, do not bank on your landlord taking such a charitable view once you reveal your intended departure. A very hefty invoice is more the norm.

'I only need to give the place a coat of paint and sort out that broken window don't I?’

'It was in poor condition when we moved in.’

‘We took on the former tenant's partitions and carpets so we just need to move our furniture out and hand back the keys, don't we?'

All might be valid statements but does your legal position reflect the same view? Will your landlord's interpretation of the situation be reflected in the claim that is served? The answers might not be what you expect and getting it wrong could have dire financial consequences. Above all, your lease is a contract with a series of legally enforceable obligations to which you must adhere.

However, if you're approaching a lease expiry and now fear the worst, don't fret. To be forewarned is to be forearmed. If you can at least find out what your potential liability will be, you can put in place a strategic approach to manage it. There are probably works you can plan to undertake in the near future, for instance, that will be more cost effective for you to complete rather than leaving them for your landlord to address.

Having a full understanding of your legal obligations is a worthwhile exercise which can go a long way when defending what might otherwise be a disgruntled landlord’s inflated claim. There may also be a tax benefit in showing a professionally prepared dilapidations liability on your company’s balance sheet, depending on your financial position.

Conversely, if you’re about to sign up to a new lease, you should ensure your future dilapidations liability is minimised before you sign on the dotted line. Are you taking on unrefurbished accommodation? Will a Schedule of Condition, recording the condition of the property when you initially occupy the building, help to protect your repairing obligations at lease end? Can any express covenants be written into the lease to avoid needing to complete works at expiry?

It’s not just the headline rent and any incentives you negotiate with your landlord that will dictate whether your new premises are a wise financial choice in the long run. No matter how swanky the premises or how reasonable the rent may seem, the dilapidations issue is not one that an be swept under the carpet. Acting sooner rather than later, and seeking the necessary expert advice, will pay dividends over time.

Further information

Contact Savills Building & Project Consultancy