Dilapidations Explained: What Commercial Tenants and Landlords Need to Know

Dilapidations are a common source of dispute at the end of a commercial lease. They can involve significant sums of money and often come as an unwelcome surprise to tenants who believed they had left a property in reasonable condition. Understanding what dilapidations cover and how claims are assessed is essential for both landlords and tenants navigating the end of a lease.

At their core, dilapidations are about whether a tenant has complied with their lease obligations regarding the property’s physical condition. What a landlord can legitimately claim, and what a tenant is required to put right or pay for, depends almost entirely on the wording of the lease.

What Are Dilapidations?

Dilapidations are breaches of a tenant’s repairing, decorating, reinstatement, or statutory compliance obligations under a commercial lease. These breaches are usually identified when a lease is nearing its end or has already expired, although interim claims can sometimes be made during the term.

A landlord may either require the works to be carried out by the tenant before the lease ends or recover the cost of carrying out those works themselves once the tenant has vacated.

Repair Obligations Under the Lease

Most commercial leases require the tenant to keep the property in repair. The extent of that obligation can vary widely. Some leases impose a full repairing obligation, meaning the tenant must put the property into good repair and keep it in good repair, regardless of its condition at the start of the lease. Others limit the obligation by reference to the property’s initial condition.

Repair does not only relate to major structural issues. It can also include worn flooring, damaged ceilings, broken fixtures, defective services, or deterioration due to lack of maintenance. Whether something constitutes disrepair rather than fair wear and tear is often a key point of dispute.

Redecoration Requirements

Commercial leases commonly require tenants to redecorate the property at specified intervals and again at the end of the lease. These obligations may apply only to internal areas or extend to external areas of the building, depending on the lease terms.

Failure to carry out required redecoration works can form part of a dilapidations claim, even if the property is otherwise in reasonable condition.

Reinstatement of Alterations

Tenants frequently carry out alterations to suit their business needs, such as installing partition walls, additional cabling, signage, or kitchen facilities. Leases often require the tenant to reinstate the property to its original layout at the end of the tenancy.

Where alterations were carried out under a licence for alterations, that document will usually set out specific reinstatement obligations. If reinstatement is required but not carried out, the landlord may include the cost of those works in a dilapidations claim.

Compliance With Statutory Requirements

Many leases place the responsibility on the tenant to ensure the property complies with relevant statutory requirements throughout the term. This can include obligations relating to fire safety, asbestos management, electrical testing and other health and safety regulations.

If compliance has not been maintained, remedial works or investigations may be included in a dilapidations schedule, even if the tenant was unaware of the issue during occupation.

The Dilapidations Process in Practice

The process typically begins with the landlord or their surveyor preparing a schedule of dilapidations. This document sets out the alleged breaches of the lease and identifies the remedial works required and may also include estimated costs.

If the tenant fails to complete the works before the lease ends, the landlord may pursue a monetary claim for damages. This is often referred to as a quantified demand and may include the cost of the works, professional fees, and, in some cases, loss of rent.

Limits on a Landlord’s Claim

The law places an essential restriction on dilapidations claims for disrepair. Under section 18(1) of the Landlord and Tenant Act 1927, damages are capped at the amount by which the disrepair has reduced the value of the landlord’s interest in the property.

This means a landlord cannot automatically recover the full cost of repairs if the works would not increase the property’s value. For example, where a building is to be redeveloped or substantially altered, the impact of disrepair on value may be minimal.

The Importance of a Schedule of Condition

One of the most effective ways for tenants to limit dilapidations exposure is to agree a schedule of condition at the start of the lease. This is usually a photographic record of the property’s condition at the commencement of the lease.

When properly incorporated into the lease, a schedule of condition can limit the tenant’s repairing obligations, so the tenant is not required to put the property into a better condition than it was at the outset.

Managing Risk and Avoiding Disputes

Dilapidations are highly technical and often require both legal and surveying expertise. Early engagement, careful review of lease obligations and realistic negotiation can make a significant difference to the outcome.

Whether acting as a landlord or a tenant, obtaining advice from a solicitor at an early stage can clarify obligations, assess risk, and avoid unnecessary costs and disputes as a lease comes to an end.

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Our latest article explains what dilapidations cover, how claims are assessed, and highlights practical steps tenants and landlords can take to manage risk and avoid disputes. An essential overview for anyone approaching a lease end.

 

Ending a commercial lease? Dilapidations could be costly if you’re not prepared.

Dilapidations claims often surprise tenants — and landlords don’t always recover what they expect either. From repair and redecoration obligations to limits on claims, understanding the basics can save time, stress and money as a lease comes to an end.

 

If you would like any more information relating to this article please contact Huseyin Youssouf on 020 8221 8055 or at huseyin.youssouf@bowlinglaw.co.uk

This article is not intended to provide legal advice; it is intended to provide information of general interest about current legal issues.