Four Key Points a Commercial Tenant Needs to Know About Schedules of Dilapidations in the UK

As a commercial tenant with a lease, there are many points you need to understand about your commercial lease agreement. Understanding your lease agreement is essential as it is a legally binding contract between you and your commercial landlord. One critical area you should be aware of is the schedules of dilapidations. If you face a dilapidation claim, it can be costly and lead to court action. Therefore, understanding schedules of dilapidations and minimising your liabilities before you enter a commercial lease can avoid unwanted and expensive claims. This article will detail four key points commercial tenants need to know about schedules of dilapidations in the UK.

1. Schedules of Dilapidations 

Dilapidation is another term for disrepair and refers to the ‘exit costs’ when you reach the end of your lease. These can arise due to the condition of your commercial premises both whilst your tenancy is current and when our lease term ends. Maintaining your commercial premises is part of your obligations in your lease agreement, such as repairing and decorating the commercial premises. Accordingly, dilapidations are breaches of these terms.  

A schedule of dilapidations is a legal document that details the disrepair arising from your time in the property as per your obligations in your lease agreement. A landlord must prepare this to be able to claim disrepair against you as their commercial tenant. It can detail, for example:

• repairs;
• maintenance; or
• decoration.

Your commercial landlord can serve you a schedule of dilapidations at various points in your lease term. Generally, however, they will do so at the end of the tenancy to see whether you complied with your hand-back obligations. At earlier points, it just gives notice of specific repairs that need completing. The aim is to ensure you, as the commercial tenant, renovate the commercial property to the condition of the lease agreement. If you do not carry out repairs, you breach your lease.

2. Identify Pre-Existing Conditions  

A critical point that you, as a commercial tenant, should be aware of in terms of schedules of dilapidations is that when entering a lease agreement, you should identify all pre-existing conditions and defects in the property. You must record these to help limit your liabilities to repair the property at the end of your commercial lease if you receive a schedule of dilapidations. Using a chartered surveyor for this is wise, as dilapidation claims can be costly. Accordingly, you want to ensure you get this process right. Therefore, it is worth putting money into at the outset.

3. Understanding Repairing Obligations  

When you consider schedules of dilapidations, you need to be sure what your repairing obligations are in your commercial lease. This will enable you to determine whether what your landlord includes in a dilapidations schedule is fair. You should note that as a commercial tenant, you can challenge what your landlord has listed in a schedule of dilapidations.

If your lease is a Full Repairing and Insuring (FRI) lease, which many commercial leases tend to be, you may be responsible for the following:

• internal repairs; and
• external repairs, which include the building structure.

Note that most leases say you must ‘keep’ the property in good repair and condition. Accordingly, as this may be a breach, you should not wait until you receive a schedule of dilapidations or the end of the lease. Alternatively, it could entitle the landlord to conduct the repairs on your behalf at your cost.

4. Types of Schedules

As your commercial landlord can serve you with a schedule of dilapidations at various points in our tenancy, there are different types of schedules of dilapidations. 

An interim schedule is one in which your landlord will serve during the fixed term of your lease. It is to remind you what your repair obligations are for when your lease ends. A terminal schedule is a schedule your landlord services within the final three years of your lease term. Both types of schedules will detail what disrepair the landlord alleges and the remedial work you need to carry out for it.

A final schedule is a schedule your landlord serves you after your lease term ends. This may detail the same disrepair as earlier schedules, but you can no longer do the required work. Instead, you may receive a claim for damages. We always suggest limiting the period for this type of schedule to be within six months after the end of the lease, which is market standard. Otherwise, a landlord can serve a schedule on you whenever they wish. 

Key Takeaways

As a commercial tenant, you should understand what schedules of dilapidations are and how to ensure you limit your liability for these. Schedules of dilapidation are legal documents listing the repairs you need to carry out to the property you lease as commercial premises. They reflect your repair obligations in your commercial lease, so you should be aware of them. However, as a schedule of dilapidations arises from the state of the property during your time in the lease, it is essential to know the property’s condition before your lease agreement commences. You should also be aware that there are different types of schedules for dilapidations which depend on when your landlord gives these to you during your lease term. Once you receive a final schedule of dilapidations, you can no longer carry out the repairs yourself and may instead face a claim for damages.   

If you need help understanding schedules of dilapidations in the UK, 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 for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.

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