How to avoid a dilapidations bill nightmare when vacating a commercial property
The buzz of moving to new and better premises sometimes distracts even seasoned businesspeople from the underlying risks of signing a lease.
One experienced entrepreneur recently recounted on social media how he had been left with a £40,000 bill after unknowingly agreeing to the conditions of a full repairing lease – a situation that happened despite advice from a solicitor.
However, the end of a lease can go smoothly – provided you take some simple steps at the start.
What you must do before signing the lease
The importance of examining the dilapidation clauses of a lease before you sign it cannot be overstated. This way you can get to grips with precisely what you will be responsible for when the agreement ends.
Taking advice from a specialist chartered surveyor, in conjunction with a commercial property solicitor will give you a detailed understanding of what the dilapidation clauses mean, along with expert insight on the most effective way of minimising any potential liability and avoiding a worst case situation.
A ‘schedule of condition’ ahead of signing a lease represents a legally robust record of the property’s exact condition before you move in. This can be attached to the lease, which makes it extremely difficult for the landlord to insist on repairs that are not the tenant’s responsibility when the lease ends.
Steps to take during the lease
It is essential to keep on top of repairs as if left they do not go away, they only deteriorate further. Commercial leases typically include ‘decoration covenants’ which mean tenants have to decorate the inside of the property every three years and the outside every five years. If you do not do this work during the lease, defects can get worse and your costs rack up when the lease terminates.
Moreover, you should carefully evaluate the impact of any alterations before making them. Not only must you get the landlord’s formal approval, but you should also take into account whether your alterations will need to be reversed at the end of the lease.
Tenants should also allocate funds and time for any reinstatement before the end of the term.
Preparing for the end of the lease
Start talking to your landlord at an early stage – a minimum of six months before the end of the lease – so you can understand what they expect from you and what they want to do with the property going forward.
Taking professional advice such as a dilapidations assessment provided by a building surveyor means you can assess the risk accordingly in good time for lease end and address certain items in good time thus reducing any risk of paying more than you need when you vacate the premises. This can be a technically challenging process and it’s important to be fully conversant with your obligations under the lease agreement.
Dilapidations come with the territory of renting commercial property, but this does not have to mean an unhappy ending when you move out. With a little forethought, professional advice and organisation the tenant and the landlord can both emerge satisfied and financially unscathed.
This answer is a guide only. Jones Melling has a team of specialists who can advise you on dilapidations.