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3 November 2014

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Dilapidations, Lease Renewals and You

Posted by: Hannah Robinson

So the summer has vanished, leaving us with a lot of side-ways rain and fond memories of leaving work in the daylight. It may be all-change with the weather, but autumnal rents are following the falling trend established in the summer. A slightly more stable economy has meant that businesses are confident enough to invest in expansion again. The commercial lease market remains busy for new occupiers and, given the general drop in retail rents, some tenants are choosing to break their current leases in order to renegotiate the terms of their tenancy. On the down side landlords are often relying on making up their rental loss by hitting tenants who leave with a large bill.

Dilapidations – An Overview

At the end of a lease, landlords will generally assess the condition of their property and consider the merits of making a dilapidations claim against both a tenant who is leaving and those who are negotiating a renewal.

A landlord will (in the majority of cases) be entitled to claim for the repair work that will need to be carried out to return the property to the state it was in when the tenancy began. The key is to assess the difference in condition over the term of the lease, rather than assessing what work could be carried out in order to put the property in the best possible state of repair. Practically, a landlord will need to evidence their claim and will usually carry out a comprehensive survey.

Most leases will contain covenants obliging the tenant to “keep the property in good and substantial repair” or to maintain the condition of the property throughout the term of the lease. The wording of the lease is essential in determining what dilapidations a landlord can legitimately claim. If a tenant is liable for the repair of the foundations, then a landlord would be able to legitimately claim the value of rectifying any subsequent structural instability.

Conversely, a lease that excludes ‘fair wear and tear’ will give a tenant protection against a landlord’s more minor claims. Even better (for a tenant) is a lease where the obligation is restricted to keeping the Property in no worse a condition than as shown on a photographic schedule attached to the lease.

Unless a lease agrees otherwise, any covenant for repair will always be ‘such repair as, having regard to the age, character and locality of the property would make it reasonably fit for the occupation of a reasonably minded tenant of the class who would be likely to take it.’

On Negotiating a New Lease a Tenant should…

Be wary of:

  1. a lease which excludes the presumption that repair will not be read in conjunction with all the facts or requires “renewal” or “rebuilding”.
  2. a lease which requires a tenant to return the property at the end of a lease in a better condition than when they first took up occupation.
  3. a lease which does not document the current state of the premises but which has onerous repair covenants. A schedule of condition attached to the lease is a very beneficial way of evidencing the condition of the property to avoid dispute at a later date.
  4. a lease that makes a tenant liable for structural damage, especially when the tenant can be liable for repair even when the damage is not their fault.
  5. a short term or lease which does not impose an obligation on the landlord to repair the roof or structure.

Signing up to a lease which contains any or all of the above could exponentially increase the cost of complying with a tenant’s repair obligations.

It is easy to dismiss repairing obligations as an immediate concern. Unfortunately dilapidations rear their ugly heads at the end of a lease and can ultimately cause significant disruption. However, by controlling their exposure, a tenant can effectively limit their susceptibility to footing large bills for repair works which could ultimately have been avoided.

Contact Us
If you are currently leasing premises or your current agreement is up for renewal be sure to contact our commercial property team as we can advise on surrenders, break clauses and negotiating lease renewals. Call 0161 832 4666 or alternatively email Hannah Robinson [email protected]

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Hannah is a Solicitor in our Commercial Property department where she manages a variety of projects from property investment to complex transactions. Hannah also supports work from the nuclear and renewable energy sector.

Hannah Robinson - Solicitor

To discuss how glaiysers can assist you contact Hannah Robinson on [email protected] or via 0161 832 4666.

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