Demystifying Dilapidations: A Prudent Approach to Property Management
If you're involved in managing your company's or business's property, the term "dilapidations" should be on your radar. If it's not, understanding that a substantial financial obligation might be lurking when you vacate a leased property, based on its condition, is crucial knowledge.
A deep dive into this subject isn't necessary if you've already consulted a specialist dilapidations surveyor and made financial provisions for your lease expiry. But if you haven't, you might be on the verge of becoming one of the cautionary tales we frequently encounter.
As a rough rule of thumb, anticipate a dilapidations liability that could be as much as a year's rent or roughly £15-20 per square foot of your occupied space, although often it's considerably more. It's also unwise to rely on your landlord's generosity when you disclose your departure plans. A hefty invoice tends to be the norm.
"I just need to give the place a fresh coat of paint and fix that broken window, right?"
"It was in poor condition when we moved in."
"We inherited the previous tenant's partitions and carpets, so all we need to do is remove our furniture and return the keys, isn't it?"
While these statements might hold merit, does your legal position align with this view? Will your landlord's perspective match the claim they submit? The answers might surprise you, and misconceptions can lead to severe financial repercussions. Remember, your lease is a binding contract with enforceable obligations.
However, if you're nearing a lease expiry and are concerned about potential liabilities, don't panic. Being forewarned is being forearmed. By understanding your potential liability, you can formulate a strategic plan to manage it. You may find that certain works are more cost-effective if you undertake them before your lease ends rather than leaving them for your landlord to handle.
Familiarizing yourself with your legal obligations is a prudent exercise that can prove invaluable when defending against an exaggerated claim from a disgruntled landlord. Furthermore, showing a professionally prepared dilapidations liability on your company's balance sheet can have tax benefits, depending on your financial situation.
On the flip side, if you're about to sign a new lease, ensure that your future dilapidations liability is minimized before putting pen to paper. Are you leasing unrefurbished premises? Could a Schedule of Condition, recording the property's state when you first occupy it, protect your repair obligations at the end of the lease? Can you negotiate express covenants within the lease to avoid the need for extensive works upon expiry?
It's not just the headline rent or incentives negotiated with your landlord that dictate whether your new premises are a wise financial choice in the long term. No matter how attractive the location or how reasonable the rent may appear, dilapidations are a factor that cannot be ignored. Taking action sooner rather than later and seeking expert guidance will yield dividends over time.