How can a commercial tenant reduce their dilapidations bill?

At the end of a tenancy, commercial tenants often face a unexpectedly large bill to return the property to an appropriate condition. However, with careful planning, extensive surveys, and choosing the right contractor tenants can significantly reduce their dilapidations liabilities.

Here are five ways a commercial tennant can reduce their dilapidations bill:

Before signing the lease: Pre-occupation survey

The purpose of a pre-occupation survey is to identify the risks of renting the property that a tennat should be aware of, such as damage to carpets.

Only once a tenant is aware of the risks can they make an informed decision about whether the property meets their needs and what should be noted in a schedule of condition appended to the lease to limit their obligations and prevent any surprise bills at the end of the tenancy.

In some cases, the results of a pre-occupation survey will result in the landlord taking action before a tenant moves in to fix a potential issue, but whatever the outcome the survey can help make sure both parties are on the same page at the start of the tenancy.

During lease negotiations: Restrict liabilities

In initial negotiations for a new lease, instead of accepting full liability a tenant may insist that the repairing liability be restricted to leaving the building in no worse condition than at the start of the lease. These clauses a most common in shorter-term leases.

In may leases the word “repair” can include a liability to renew, which is where dilapidations can become particularly expensive. For example, if the roof of a warehouse was in a poor state of repair at the start of the lease and would need replacing by the end of the tenancy. As a precaution, tenants should instruct a RICS-qualified chartered surveyor to produce a Schedule of Condition describing the state of the property and decoration as well as any pre-ecisting items of disrepair.

Before moving in: Schedule of condition

A Schedule of Condition (SoC) is a record of the state of a property at the commencement of the lease and can be critical in any dilapidations discussions at the end of a tenancy.

The exact format of the SoC can vary, but in most cases it should be produced by a RICS-qualified chartered surveyor and include clear descriptions of the state of the repair of all aspects of the property. This might include everything from the carpets and paintwork to the wiring and window seals. Ideally, text descriptions are accompanied by photographs and/or videos that highlight the issue.

The Schedule of condition can provide the evidence a tenant would need to demonstrate the prior condition of a property and therefore the state that it should be returned to (unless outherwise outlied in the lease). WIthout this evidence it can be difficult for a tenant to prove that they were not the cause of any issues that arose during the tenancy.

During occupation: Dilapidations assessment

A dilapidations assessment (sometimes called a “dilapidations liability assessment” or “dilapidation survey”) is a highly detailed survey that reports on the current condition of a building. It will detail what items of disrepair, redecoration, reinstatement or statute compliance are required, as if the lease was to end on the day that the assessment was undertaken. And it will set out both the works required and the likely budget costs.

Tenants can utiize the assessment as a guide to start planning for the end of the lease and putting money aside to cover the items detailed, alongside creating a contingency budget for any future uncertainties.

More than just helping a tenant to plan for their future liabilities, a reliable estimate of dilapidations costs can be considered an expense under Financial Reporting Standard (FRS) 12 and therefore excluded from the company’s tax computation.

At the end of the tenancy: Complete the remedial works yourself with the right contractor

If a tenant leaves the remedial works up to the landlord, they may choose an expensive contractor and leave the tenant with the bill. It most circumstance it is therefore prudent for a tenant to complete the remedial works themselves with the help of a reliable contractor.

Dilapidations specialists like Workspace Dilapidations can complete any required remedial works on-time and on budget saving tenants money and reducing the stress of any surprise dilapidations bills. Even just tendering the works can help a tenant reduce any potential settlement fees as they can demonstrate what the remedial works should cost.