In Short
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Dilapidations clauses in leases require tenants to repair and maintain the property.
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Failure to carry out required repairs could lead to a claim by the landlord for costs, or they may carry out repairs at your expense.
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A Schedule of Condition can limit your responsibilities by documenting the property’s condition when you take on the lease.
Tips for Businesses
Ensure you understand your repair obligations in a commercial lease, including during and at the end of the lease term. Consider preparing a Schedule of Condition to limit your repair obligations. Budgeting for potential dilapidations costs can help avoid unexpected expenses. Always review the lease carefully and seek legal advice if needed.
If you are interested in running your business from a property in the UK, you may have entered into a lease or be looking for the right site. In that case, you should be aware of your obligations as a tenant. These can include a wide range of responsibilities, from payments to insurance requirements. In general, a standard lease will also include obligations on the tenant to keep the property in good repair and condition. This can require you to repair and decorate parts of the property, and it is crucial that tenants be aware of the extent of their responsibility to keep a commercial property in good repair. Or perhaps you are seeking to limit a potential claim from your landlord concerning the condition of the leasehold property. This article will explain what dilapidations clauses are and your responsibility to make good any damage or disrepair in the premises you lease.
This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.
What Do Dilapidations Mean?
Dilapidations refer to any departures from the repairing, replacement, reinstatement or decoration obligations in the lease and will include damage you have caused to the business premises you lease or to belongings or fixtures of your landlord that you have allowed to fall into disrepair, for example.
The lease will contain two sections that relate to dilapidations:
- the repairing and decoration obligations that are ongoing throughout the term; and
- the end of term obligations, which will require you to remove alterations, make good damage, and perhaps reinstate the property to a shell condition.
These clauses exist because your landlord wants to ensure you will look after their property. When you do not comply with these obligations, the resulting breach is known as dilapidations. Further, your lease will usually contain clauses requiring you to ensure the property complies with all relevant legal obligations. For example, you may need to ensure your property complies with health and safety regulations.
What if I Do Not Carry Out Repairs?
If you do not carry out the repairs required of you, this may put you in breach of your lease. Consequently, your landlord can then make a dilapidations claim against you. The landlord may also have the right to enter and carry out the works themself, at your cost. While this may seem like an attractive option, you have no control over who does the repairs or their costs. In addition, it does not waive the breach. The landlord could seek damages for the period the property was unrented and for other expenses. If it is not too late, such as after the term ends and you have vacated, complete the work yourself. It is better to pay for it than delay.
Continue reading this article below the formBudgeting for Dilapidations
Even with a favourable agreement on dilapidations, it is wise to budget for potential repair costs. Having money set aside for repair works can be extremely useful. It helps ensure you can keep the property in good repair during and at the end of your lease. To budget for costs, engage a surveyor before fulfilling your end of lease obligations to advise on compliance.
How much you will need to set aside will depend on various factors, including:
- age and type of the property you are renting;
- the length of your lease; and
- any alterations you have made.
Schedule of Condition
As a tenant, you should always investigate the property’s condition before you take on the lease. This is because you will inherit any pre-existing disrepair unless the lease says otherwise.
However, there are ways, in conjunction with an inspection, to limit your repairing obligations. This is usually done by preparing a Schedule of Condition and attaching it to the lease. The Schedule of Condition records the property’s current state to prevent you from being required to improve it. A Schedule of Condition is similar to an inventory in a residential property.
A well-drafted Schedule of Condition reduces the need for repairs at the end of the term, though it is not bulletproof.
Repairs During and at the End of Your Lease Term
Tenants should comply with their obligations during the lease term. Dilapidations, however, usually become a concern at the end. This is when the landlord will most likely assess reinstatement, repairs, and decoration. Your lease will outline obligations for the end of the term, typically requiring the property to be left in the agreed condition.
Your landlord can serve a Schedule of Dilapidations on you during your lease term or in readiness for your lease end, or following the end of your lease. The Schedule of Dilapidations lists all items that your landlord believes need repairing, reinstating, or redecorating, in line with your obligations under the commercial lease.
If served during the term, you may be able to complete the repairs yourself. If you do not make the necessary repairs, your landlord could seek to end your lease for breach of your lease terms. Alternatively, your lease may allow them to carry out the repairs themselves and recover the repair costs from you. If the schedule is instead served after the term, the Landlord will just be claiming costs; they would not permit you to complete the works now.
Key Takeaways
Repair and decoration obligations are common in commercial leases. They require you to make good any damage you cause to your landlord’s property and to keep it in good repair and generally in good condition. You must also ensure you comply with all applicable regulations, such as health and safety regulations. Notably, a landlord can make a dilapidations claim against a tenant for failure to keep the commercial property in good condition.
Whilst you are unlikely to negotiate the removal of such clauses, you can limit your responsibilities by requesting a Schedule of Conditions of the premises. This document will serve as a record of the premises’ condition when you rent them. Likewise, it means that you are not required to maintain the premises in any better condition than they were at that time.
If you need help limiting your responsibilities for dilapidations in a commercial lease, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A repairs clause in a commercial lease requires a tenant to keep the leased premises in good repair. This involves making good any damage to the property or to the landlord’s fixtures and fittings.
A Schedule of Condition document lists the condition of a particular premises in detail. You use it where commercial property is not in good condition. It ensures that commercial tenants do not need to keep the property in any better state than it currently is.
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