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

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.

Get Pre-Lease advice to avoid the Dilapidations Trap

March 8th, 2011

Having been caught-out by a dilapidations claim on a previous short let a client turned to me for Pre-Lease Advice on his latest property deal.

A rather run-down unit was the subject of his attention; the previous tenant had ‘gone bust’ leaving it full of junk and in right state.

Though not in the best part of town, the location suited him.

Before surveying the unit I read the proposed lease.  It was clear that the terms on offer were inappropriate; they would have suited a long lease on a property in Mayfair or Knightsbridge.

This was a one year lease on ‘Full Repairing’ terms.  On that basis the dilapidations claim at the end of the year could amount to £20k or more; nearly three times the rent!

When the Landlord showed me the unit he agreed that the terms were unreasonable for such a poor property.  He said his lawyer had advised him to go with it and try and catch the other side out.

It just goes to show, it doesn’t matter what you might agree with the Landlord it’s so important to check the draft lease before you agree to anything.   Everything you agree needs to be written down and be part of the lease.

We got terms changed, of course, but it just goes to show that you can’t trust anyone!

So get advice from a surveyor who knows the rules of the game to avoid being caught in the dilapidations trap.

Black Mould

February 14th, 2011

Black mould can be a constant source of distress to many homeowners.

It is especially common in older properties, which are poorly insulated and ventilated and which have been ‘modernised’ to provide central heating and showers, draught stripping and double glazing.

Black mould on cold surfaces

Black mould normally occurs due to condensation; that is where warm, moisture-laden air condensates on cold surfaces creating a damp environment in which the mould can grow.

Bathrooms, bedrooms and kitchens are the most common rooms to suffer and small bungalows or big old houses can suffer in equal measure.

There is no single cure.  Each incident must be considered on its merits but the main requirements are:

  1. Good extract ventilation to remove the moisture laden air quickly
  2. Good insulation to prevent wall surfaces from getting too cold
  3. Good heating to warm wall surfaces

A common fault is that bathroom fans are often undersized or linked to the light switch.  This is a mistake, they need to be sized to extract the steam quickly, not just to provide background ventilation and they need their own switch so they can operate when the light is switched-off.

Bathrooms should also be ‘overheated’.  Don’t be afraid of installing a large heated towel-rail radiator and make sure it’s free from any thermostatic controls.

For further information and advice contact Chris Mills on 01332 603000.

Builders Build; Surveyors Survey

January 31st, 2011

The roof is sound but water leaks through erroded joints in the stone parapet

Damp is the enemy of buildings.  While it stays outside it is largely ignored but when it leaks inside panic sets in.

I was called recently to a delightful Georgian house  on the fringe of the city centre.  Water was pouring-in through the ceiling in two rooms and other rooms were slightly affected. 

Some years ago a roofer had advised the owner to re-roof the property but, inspite of subsequent ‘repairs’, the leaks have persisted.

I checked-out the roof; it was an OK job, not the best, but it certainly wasn’t the cause of her leaks.

It took only a few minutes to identify the perished stonework in the parapet wall as the culprit.  Joints are open and stones are badly eroded.

I know a good local builder with some exellent stone masons who I know will be just right for the job.

It’s ‘Horses for Courses’.

A roofer knows about roofs;  a mason can build you a wall, but rarely do tradesmen have the all-round knowledge required to cross the boundaries of their trade; an expert surveyor does!

The Last Staw!

December 14th, 2010

There was a first for me last week in more years than I care to admit to as a surveyor.

The call came from a client in North Derbyshire with a modern house on a large estate.  Tiles were falling off his bathroom wall and the room was full of flies.  His wife and daughter were giving him grief because they couldn’t use the shower.

It was clear that water from the shower had got through the seal around the bath edge and soaked into the wall.  The paper face on the board beneath (plasterboard I first thought) had disintegrated and turned into a black ‘mush’  leaving the tiling with nothing to stick to.

But what about all the flies?  Dozens of very tiny midges.  Where were they coming from?

Removing the bath panel the floor looked more like a hen house; straw everywhere.  It wasn’t plasterboard at all, it was a straw-board partition!  Clearly, the moisture had caused the straw to decompose; it was like having a compost heap for a wall, hence the infestation of flies, breeding in the ‘compost’.

There was no option but to tear the wall down and rebuild it in moisture resistant board.

The wall was rebuilt, retiled and redecorated in a fortnight with smiles all round.

Demolition Sheffield

October 29th, 2010

There’s a tendency for some to guard our ‘Heritage’ in the mistaken belief that every old building should be preserved just because it’s old.

 Granted, ‘fashionable’ planning polices of the day have resulted in swathes of ill-conceived demolition.  The heart and the heritage have been torn from so many of our inner cities, to be replaced with faceless glass and tin-shed shopping centres.

 Will future generations bemoan their passing?  I think not.

 But dying industries have left industrial conurbations with acres of redundant industrial buildings, dinosaurs, of no viable use and of no architectural merit.  Preservation is not an option; they are ripe for redevelopment.

 One such is a site in Sheffield where we are project managing the redevelopment for a national developer.

 An old tool-making factory was to be demolished beside a busy main road and could have distracted drivers for weeks. 

 To avoid that, the facade was retained to hide the demolition going on behind.  Then, early, one wet Sunday morning, the explosive boys worked their magic and felled the front in one fell swoop.

 Check it out at Factory demolition

The Spice Lounge Gets it Right

October 22nd, 2010

Shah had been involved with restaurants for years but he’d never set-up one from scratch. Nor did he know Derby well.

But Derby’s Friar Gate area, with its vibrant night life, was the ideal place for his dream - a top-notch Bangladeshi restaurant to compete with the best Derby had to offer.

Shah knew what made restaurants work – Understanding the expectations of his customers…and exceeding them!

But he knew nothing about property.

A friend suggested Shah should take professional advice and recommended Chris Mills at Barlows. That’s networking for you!

A former Cantonese resturant was identified as a likley candidate.

The place had ‘Potential’.  It needed a full re-fit; an investment of circa £100k.  Shah knew he could make it work; he had a vision, but he’d never looked above the ground floor.

Friar Gate, is a Conservation Area close to the city centre.  By its very nature the buildings are very old.  

A lease on ‘Full Repairing’ terms was on offer; a massive risk on an old dilapidated building like this one.

The roof was on it’s last legs and had leaky old rooflights; definitely not what you want above your newly refurbished restaurant.

Realising a potential tenant could be lost the Landlord re-roofed the building.  This removed the risk of re-roofing from a potential dilapidations claim.

Shah managed the re-fit himself.  It was a steep learning curve and, at times, rather fraught, but I usually knew ‘a man who can’ to come to Shah’s rescue.

Now, some eight months or so since opening, The Spice Lounge is a success.  It was voted Best Indian Restaurant in Derby and I value Shah not just  as a client but as a friend.

Shah’s pre-lease survey saved him the price of a new roof and the potential damage and disruption to his restaurant that could have ensued. It also plugged him into a network of reliable local trades and professions, many of whom are now pleased to be customers too.

http://www.spicelounge-friargate.co.uk/

Due Diligence in Business Buy-outs

October 15th, 2010

In the frenzy surrounding business buy-outs it’s easy to lose sight of the cost of taking-on the property from which the acquired business trades.

It is a massive step, to step into the boss’s shoes.  But make sure he doesn’t ‘fill his boots’ at your expense.

It is a business decision that requires your ‘Business head’ to be fully engaged.  Sentimentality must be allowed to fly out of the window.

Don’t be afraid to take independent advice from your own accountant and your own solicitor. You should also consider advice on the marketability of your offering and the potential for growth.   If a business stands still it will fall behind the rest; it’s got to move with the times.

As a business owner approaches retirement it’s all too easy to become complacent and sit in the ‘comfort zone’; the business can become stale.  There is no incentive to invest in the business and, as we know from experience, investment in the property usually takes a very back seat.

Fixtures and fittings become ‘tired’ and the the building falls in to disrepair.

When did you last walk around the back of your business premises?  Have you seen that leaking gutter and the weeds in the outlet?  When were the windows last painted?  That one looks rotten!  Why can’t I open this fire escape door?  Oops, it’s dropping to pieces.  Why is water running from that pipe and the brickwork below it perished?

The current owner has allowed all this ‘on his watch’ so why should you pick-up the cost of his years of neglect?

Dilapidation claims on rented property can run into many thousands of pounds.  Two or three times the annual rent is quite common.  And this is a cost that must not be ignored because it’s you who will be paying the bill.

And what does the lease say? Can the rent go up? When does the lease end? Can I renew it? Can I sub-let the spare room? Should the Landlord fix the roof?

Contact Chris Mills for property advice at chris@barlow-associates.co.uk

TRANSITION: Thinking the unthinkable

October 9th, 2010

Remember the petrol tanker drivers’ strike in 2000?  Panic buying, fuel rationing, general mayhem; fresh food shortages in the supermarkets.  

That sudden interruption in supply affected us, mainly as ‘motorists’, and for only a few days. 

But what happens when the oil runs out?

Think…is there a singe part of your life that wouldn’t be affected?

Stats show that world-wide oil production has past its peak; new finds are fewer and harder to exploit and, like it or not, our lifestyle, or that of our children, will be forced to change; there will be no choice!

Prices will rise as oil becomes scarce.  Producers will protect their resources.  Users will be held to ransom. Wars could break out.

It’s not ‘IF’ the oil runs out, it’s ‘WHEN’!

The ONLY alternative is to plan for NO OIL.

But who is going to take the lead?  It’s not even on governments’ agendas so why do we need to be concerned today?

‘Transition’ is about changing the mindset; the way we do things; the way we live.  It’s not about ‘Climate Change’ or ‘Saving the Planet’. It’s not about reducing your fuel bills or the ‘Green Agenda’.

‘Transition’ groups worldwide are taking up the cudgels; there are some serious players involved but the many fanatical, do-gooder, eco-warrior types could be a distaction for businesses trying to get to grips with the consequences.

The big challenge for businesses is: 

How do we trade and compete in the world as it is today while preparing for the world as it will be tomorrow?

Lease end? Don’t do nothing

October 8th, 2010

If you rent your business premises on a commercial lease you need to be ‘on the ball’ when you hit the final year.  Read the lease carefully and take professional advice; its a legal document and can be a mine-field

To do nothing can be  disasterous.

If you want to stay put you could end up ‘out on your ear’ or, if you want to leave, you could end up paying rent for another few years! It’s so important to get the legals sorted out. And in good time too!  Notices may need to be given by certain dates or other actions taken.

The practicalities can be just as important.  It can take months to find a new property, then further months to negotiate a new lease.

The cost of moving and ‘kitting-out’ new premises will cost more than you thought; and don’t forget the Dilapidations bill!

If you want to know more get in touch with Chris Mills at Barlow & Associates