Out with the old and in with the new
To what extent are travel agents liable for repairs to a property they have occupied at the end of its lease?
When a lease ends, the occupying business is often primarily focused on acquiring and fitting out its new premises – any residual liabilities associated with the vacated premises are seen as a low priority. Potential liability for dilapidations (repairs required to return the premises to its original state) is an issue that is often overlooked, yet the associated financial risks are not so easy to avoid.
The basis of a dilapidations claim is simple. If a tenant has breached his lease obligations insofar as they relate to repair, redecoration or reinstatement of alterations, then the landlord is entitled to be compensated for these breaches. Most commercial leases require tenants to keep the premises in good repair and to redecorate at regular intervals during the term of the lease.
A landlord will generally serve a Schedule of Dilapidations before or shortly after the end of the term of the lease. This will set out details of items of disrepair or redecoration, which need to be remedied by the tenant. Where a tenant has carried out alterations to the premises to suit its business needs, the landlord can require the tenant to remove the alterations and reinstate the premises before the lease ends.
Dilapidations claims can be complex and it is a good idea for tenants to seek advice from both a surveyor and solicitor. There are certain statutory limits placed on dilapidations claims. First, where a landlord intends to redevelop the premises, there is generally no entitlement to claim dilapidations, as any works carried out by the tenant would be rendered valueless. Second, the landlord cannot claim for an amount that exceeds the extent to which the value of the landlord’s interest has been diminished as a result of the disrepair.
Fix it – or pay for it to be fixed
When a Schedule of Dilapidations is served, a tenant usually has the option of either carrying out the works before the lease ends or
negotiating a financial settlement with the landlord. If a tenant carries out the works it can choose the timing of the works
and instruct its own contractors, which may result in costs savings. Alternatively, pursuing a financial settlement with the
landlord may save time and can allow a business to focus on other priorities.
How to minimise a claim for dilapidations
- Seek advice on the nature and extent of your repairing obligations before taking on a lease and consider whether there is scope to limit these
- Schedule planned maintenance throughout the term of the lease.
- Make financial provision for any dilapidations claim in advance.
- Obtain dilapidations advice from a surveyor before the lease ends and commission a dilapidations liability assessment.
- Establish the landlord’s intentions in relation to the property.
- Prepare a video or photographic record of the condition of the premises before you vacate.
Published: 23 Jul 2015