It hasn’t taken a period of austerity to raise the importance of a lease end dilapidations claim for the savvy landlord or asset manager. However, all too often dilapidations surveyors find properties in poor condition without proper maintenance having been undertaken by the tenant. The ensuing battle to recover dilapidations costs can be a drawn out process, with the premises left in an unlettable condition during that time.

A strategic approach to dilapidations, and indeed property portfolio dealings through the entire letting cycle, is the key to avoiding such situations. For landlords or asset managers, this means thinking about dilapidations liabilities even before a lease is signed with a new tenant. As solicitors rarely inspect a property, a surveyor can be better placed to advise on what the major dilapidations issues will be and how best to protect against them.

A tenant’s request for a Schedule of Condition can raise concerns over an asset’s perceived value, but a professionally prepared document can leave a landlord in a stronger dilapidations position than they may think. Does the lease specify that the property must be left ‘in no worse condition’ or ‘in no better condition’ than that which is evidenced by the Schedule? There can be a significant difference in the costs the tenant is liable to pay as a result. Can a covenant (essentially a legal requirement) enforcing the replacement of carpets in a colour and style chosen by the landlord be incorporated into the lease?

Failure to inspect a premises from a dilapidations perspective during the lease term may also leave a landlord with a significantly deteriorated asset. Instead, it can be far less contentious to ask a tenant to address repairs via an interim dilapidations schedule than pursue everything at lease expiry. This has the added benefit of ensuring a tenant can’t instigate a diminution in value defence - essentially an argument that the cost of putting the property into good order is greater than the landlord’s loss in value as a result of its condition.

There is no better example of why a strategic approach to dilapidations is invaluable than when a tenant encounters financial difficulties. Landlords left to pick up the pieces when an occupier goes out of business have missed an opportunity to enforce a repairing obligation when the tenant still had funds available. For example, recent administrations in the retail sector could see some landlords hoping they can get a claim prepared before the doors shut for good.

Landlords in all sectors should be mindful that no tenant is 100 per cent invincible. The cost and effort of taking a strategic approach to dilapidations from day one of a lease can prove to be priceless later.

Further information

Contact Savills Dilapidations