Dealing with a Dilapidations Claim where a Schedule of Condition was not prepared originally
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Where the business is going well and you have decided to expand and move into a new business premises, or business is not doing well and you have decided to call it a day, or even if you have got to the age to retire, when you move out of your leased property the only other thing that is certain, other than death and taxes, is that a Dilapidations Notice will be served upon you, often known as a Terminal Dilapidations Schedule. To many business owners this will come as a surprise, particularly if they have had a good relationship with the landlords over the years. In fact, we would go as far as to say that even with a good relationship with the landlord things will change a great deal once you have decided to leave the property as the landlord puts on his investor hat and thinks I now need to re-rent the business premises and to do that I need to have the property in as good a condition as possible to make it very rentable.
What is a dilapidations claim?
In its simplest form a dilapidations claim is a list of building work that is required to be carried out to bring the property back up to the standard within the lease. Note that we say within the lease and not the condition the property was in when you moved in. We have in the past come across some business owners who are horrified at this proposition who argue that when they moved into the property it was in a very poor condition and that the business owner, with the alterations and amendments, has made the property far better than it was originally. Nevertheless, much to their shock, a Dilapidations Notice is served. We would emphasise this because the Dilapidations Noticed is making a claim against what the property should look like compared to the lease.
What else can the surveyor do?
If the business owner was to consider the surveyors point of view, who is appointed to look at the property having had no past knowledge of what the business premises look like, they carry out the schedule as per the conditions set out within the lease. Leases today are commonly full repairing and insuring leases, which means exactly that, that you have the full responsibility for the repair and the insurance of the property. In addition to the repair responsibility, there is normally a redecoration covenant, which means there is a requirement within the lease to redecorate the property periodically and normally at the termination of the lease.
Usually there is also a reinstatement covenant and this is a requirement to reinstate the premises, as they were when you moved in. Many business owners will be somewhat surprised that the landlord requires them to undo many of the “improvements” that they have made, as these improvements will assume and assure the landlord, or the landlord's surveyor, will add value to the rental. This is normally only in the eye of the beholder and even with negotiation, in our experience, most landlords require the business premises to be returned back to how it was at the start of the lease.
We have over the years seen some rather unusual requests to reinstate the property to its originally condition. One of the most common ones that occurs is the removal of a mezzanine floor. This is a floor that is added where there is suitable roof space and is often the first stage of expansion of a company, used as a storage area or even for office space (industrial units). Most business owners are very surprised when it is asked that this be removed. We have also wondered why and we can only that it is because the landlord does not wish to set a precedent, or even have the time to consider each case on its merits and individually.
Will a good relationship with the landlord help me with the dilapidations claim?
We would comment that the answer is yes, but… Yes, a good relationship will help you with the dilapidations claim, as it is always best to get on with your landlord. We have added the but because it is very important to remember that your whole relationship with the landlord changes once you stop renting from them. If you look at their business they are now no longer gaining an income from you and will be looking to the future where they need to gain a rental income from the business premises. They will therefore naturally want the premises back in as good a condition as legally they are allowed to have and this is the position the dilapidations claim is trying to put them in. Whether you have had a good relationship or not they have to look out for their future business interests.
I have a bad relationship with my landlord will this affect my dilapidations claim?
Again we would answer yes, but … and again we would say it is good policy to always get on well with your landlord, but in this case the lease does work in your favour as it sets out a standard by which properties should be maintained to and it is not subject to how well or not that you get on with the landlord.
The landlord won't deal with me on the dilapidations claim, he refers me to his dilapidations surveyor
This is very common with landlords, particularly the larger landlords, as they do not have the time, or the skill and knowledge, to be involved in the dilapidations claims process. We would, however, recommend that you write to your landlord to clarify exactly what authority the surveyors have. This can range from an in-house surveyor having the authority to agree a dilapidations claim, usually up to a certain financial limit, to a third party dilapidations surveyor, who will have to report back and take the opinion of the landlord/property owner. We would add that this arms length transaction can work very well as the landlord's surveyor doesn't have the emotional involvement that you may have with the property and the issues.
What will happen if I don't carry out the dilapidations work?
Several things could happen and one extreme is that you could be taken to court and damages won for the non-performance of the contract, or in a best case scenario, the landlord could decide that it is easier to rent the property and therefore he will rent the property. However, be aware that he can also make a dilapidations claim against you.
What if I only do part of the dilapidations work?
Again, this could result in a court hearing, as you breached the contract, but equally you could argue that you have carried out works that make the property rentable and that it won't affect what is known as the diminution in value.
What is diminution in value?
This is the affect on value that not carrying out the works will have and caps the limitation of liability you have with regard to the property.
Should I just do all the dilapidations works?
Whilst dilapidations is meant to be an interpretation of the work you are required to carry out in accordance with the lease it is only an opinion and as such the opinion can be wrong or errors can be made. We feel it is only a very unwise person that would carry out all the dilapidations work as there is nearly always room to negotiate and discuss items.
Landlords make a percentage of payments
This is more common than you think. Where the landlord agrees that, for example, part of the redecoration is your responsibility, but that the premises would look better if all walls were redecorated, they will then look at ways to make contributions towards this cost. It can be as simple as off-setting against the other building works that are required in the dilapidations, or as difficult as trying to agree a suitable price for it.