Archive for April, 2011

Dilapidation Claims – A Tenant’s Nightmare and How to Reduce Them

Wednesday, April 6th, 2011

Tenants of commercial property are in for huge unexpected bills when their lease ends.

Recent figures published by The Royal Institution of Chartered Surveyors’ Building Cost Information Service showed lease-end Dilapidation Claims of more than a year’s rent are common.

The BCIS survey revealed average settlement figures of £9.54/ft2  for Offices, £7.27/ft2 for Industrial Units and £21.54/ft2 for Retail premises.

That equates to £19k on a 2,000ft2 Office building, £36k on a 5,000ft2 Industrial Unit and £16k on a 750ft2 Retail Shop.  And those are settlement figures!

Worryingly, initial claims were, on average, 100% higher than the settlement figures!

Dilapidation Claims are, in effect, Damages Claims against the Tenant for not complying with the repairing obligations in the lease.

Dilapidations is a complex and contentious subject

But it doesn’t stop there.  Claims can include the cost of cleaning and redecoration, stripping-out alterations, reinstatement works and the rent lost whilst the work is being done. 

To add insult to injury, the Landlord can usually claim his surveyors fees and lawyer’s fees in making the claim too.

If the claims were fair and the money was spent on the buildings there could be little complaint.  But Landlords frequently pocket the money and leave the mess for the next Tenant to sort out.  Make sure that next Tenant isn’t you.

Dilapidations is a complex and contentious subject.  The RICS has published a lengthy Dilapidations Guidance Note for surveyors and the Property Litigation Association has produced a Dilapidation Protocol for managing disputes.  They both aim to engender an atmosphere of ‘fairness’, ‘professionalism’ and ‘cooperation’ in the preparation and management of claims.

Sadly, Landlords’ claims continue to be massively overstated.  Recently we negotiated a £42,000 claim down to £15,000.  The ‘tin shed’ unit was only 3,000ft2 on a three-year term; it had hardly been used and had been left decorated, clean and tidy.

So how can you avoid such claims?

Ideally take action before you sign-up.  Use a lawyer, but not without an experienced dilapidations surveyor too.

The surveyor will check out the building and the proposed lease terms to make sure you’re not walking in to a claim at ‘Day One’.

The premises should be in the condition the lease says you should leave it.  If it’s not there are ways round that.

If it’s an old industrial unit on a 3-year term avoid a lease that would suit a 50-year term on a retail store in Knightsbridge.

The terms should be appropriate.  Don’t be fobbed-off by ‘this is our Standard lease’.  There is no such thing.  Just like there’s no such thing as a ‘Standard Building’ or a ‘Standard Landlord’ or a ‘Standard Tenant’.  Everything is negotiable.

If all that’s too late, your lease is at an end and you have a claim, use a specialist dilapidations surveyor.  They’re usually Chartered Quantity Surveyors or Building Surveyors with additional training and experience in dilapidations.  They will save you £OOOs.