Here we explain tenant and landlord responsibilities under ‘full repairing and insuring’ (FRI) leases, how dilapidations arise, and the critical role of surveyors in managing claims and costs.
What are dilapidations?
The term 'property dilapidations' refers to the damages or disrepair that may occur to a property. This term is crucial for landlords and tenants alike when negotiating lease agreements and dealing with property conditions at the end of a lease.
Dilapidations may result from mistreatment, neglect, or going unnoticed.
Landlords typically arrange building consultancy during a lease, with a surveyor assessing the property.
If tenants fail to complete required repairs to restore the property's original condition by lease end:
- A schedule of dilapidations may be carried out, or
- A dilapidation claim may be served.
The dilapidations protocol protects both landlords and tenants:
- For landlords: Prevents property value loss from repairs they are not liable for.
- For tenants: Ensures they do not pay for repairs not included in the original agreement.
A commercial lease outlines the required property condition at lease end.
Understanding Dilapidations, Lease Responsibilities, and the Role of Surveyors
All occupiers and owners of commercial properties will experience dilapidations at some stage. Most usually lease-end dilapidations.
Most leases are Full Repairing and Insuring (FRI), making tenants responsible for:
- All repairs
- Decorations
- Reinstating alterations at lease end
Some leases are effectively FRI, where:
- The property is part of a larger building (eg, a shop in a shopping center, or an office floor)
- The landlord maintains common parts (roofs, structure, etc.) and recharges tenants during the lease
Dilapidations arise when tenants neglect lease obligations, leaving properties in disrepair.
- After lease end, tenants lose the right to carry out repairs unless permitted by the landlord.
- This allows landlords to seek damages or compensation for unmet responsibilities.
A chartered building surveyor :
- Drafts a Schedule of Dilapidations (Quantified Demand) for the landlord
- Negotiates on behalf of the tenant
A chartered valuation surveyor :
- Assesses how remedial costs impact the property's freehold value
Legal framework :
- Landlord compensation is based on either:
- The Cost of Works, or
- The Diminution in Value cap
- Both surveyors are essential for determining these figures.
To negotiate against this, the tenant should :
- Hire a chartered building surveyor to negotiate the landlord's claim
- Hire a chartered valuation surveyor to assess the Diminution in Value impact
Exit Costs
Proactive Dilapidations Planning and Cost Management
Early planning helps tenants avoid unexpected costs at lease end. Here we outline how strategic budgeting and property assessments can reduce financial exposure.
At the end of a lease, dilapidations can hit tenants with unexpected costs. CFO s need to accurately budget for all exit expenses in their Accounts.
- We collaborate with clients to deliver:
- Detailed and strategic budget plans well before lease-end (break clause or expiration)
- Expert Cost of Works assessments from chartered building surveyors
- Insights from chartered valuation surveyors
- This approach allows us to advise on the likely reduction of costs through the statutory Diminution in Value cap .
- To minimize future lease-end dilapidation costs , we:
- Create Schedules of Condition for new leases, documenting the property's initial state
Prevent tenants on Full Repairing and Insuring (FRI) leases from having to return properties in better condition than when they received them
Notice To Reinstate
Understanding Reinstatement Obligations and Common Pitfalls
Reinstatement breaches can be complex. Here we highlight notice requirements, compensation limits, and common errors when identifying what must be reinstated.
Of the three distinct types of breach, many leases provide that the landlord must give notice to reinstate a minimum period prior to lease end.
- The three distinct types of breach:
- Repair : Fixing damage or wear to return the property to its required condition.
- Redecoration : Refreshing surfaces (eg painting or cleaning) to meet lease terms.
- Reinstatement : Removing alterations and restoring the property to its original state.
- Many leases require landlords to give notice to reinstate a set period before lease end.
- Failing to act promptly can forfeit this right.
- Reinstatement obligations :
- Limited by common law (similar to repair obligations governed by statute)
- Landlord compensation for failure to restore alterations is capped at:
- The lesser of repair costs, or
- Any decrease in the property's freehold value
- Common mistakes occur when identifying what must be reinstated:
- It is crucial to confirm what was originally leased.
- This may include tenant-added alterations or fittings from a previous lease.
- If the current contract does not require restoring prior changes :
- There is no obligation to reinstate historical items.
- These items now belong to the landlord.
Summary
‘Dilapidations’ represents a complex and potentially unexpected level of expenditure at lease expiry.
We uniquely provide both chartered building surveyors and chartered valuation surveyors to offer dilapidations advice and steer you through these complexities to the best outcome, whether you are the owner or outgoing tenant.
We provide this in respect of all commercial property types, throughout the United Kingdom & Ireland.
Services
Dilapsolutions
Chartered Surveyors
We are the only dilapidations consultancy in the UK & Ireland that provides both Chartered Building and Valuation Surveyors, ensuring the best results for our clients.