When signing a commercial lease, it’s easy to focus on location, rent and layout but overlooking repair obligations can be a costly mistake.
One of the most misunderstood areas is dilapidations: the legal term for breaches of a tenant’s duty to maintain the property. Whether you’re a new business owner or renewing a lease, understanding dilapidations is essential to avoid unexpected liabilities and disputes.
Raeesah Dudhwala, explains what dilapidations are, why they matter and what tenants should look out for before signing a lease.
What are dilapidations in a commercial lease?
Dilapidations refers to breaches of a tenant’s obligations under a lease in relation to the condition and repair of a property. This can either be during the term of the lease or at the end.
Under the terms of most commercial leases, the tenant is responsible for the cost of the repairs or the loss in value caused to the landlord as a result of the disrepair. Disputes usually arise over the extent of the tenant’s liability.
How can tenants protect themselves from dilapidations claims?
It is extremely important to take legal advice when entering into a lease, as a tenant, to try to protect against future liabilities.
One way this can be done is by the inclusion of a schedule of condition, which is prepared prior to entering into the lease and annexed to the lease.
This would document the state of repair and condition of the property at the outset of the lease. This aims to limit the tenant’s repairing obligations during or at the end of the term.
The schedule of condition would provide a detailed record of the condition of the property at the outset of the lease.
This often includes photographs of the property so that the tenant is not responsible for putting the property in a better state than it was at the outset. Therefore, the tenant’s obligation is limited to only repairing the property so far as is documented in the schedule of condition.
What lease terms should tenants review carefully?
- Definition of “Property” – If the lease is unclear about whether shared walls, ceilings, or common areas fall within the property, the tenant could be held responsible for repairing and maintaining these aspects.
- Term of the lease – This affects a dilapidations claim, especially in relation to “wear and tear”. A long lease can impact how much the property could realistically have diminished in value from the tenant’s use.
- Age of the building/property – A schedule of condition is particularly important here because the landlord may seek to require the tenant to put the property in a better condition than it was at the outset.
- Standard of repair – Precise language should be used to define this. It should be addressed whether the tenant is to put the property into repair or just maintain the condition.
- Limitations on liability – Is there a cap on liability for dilapidations in the lease? Are there exclusions for usual wear and tear, damage from insured risks or latent defects?
- End of lease obligations – These should be clear and specifically addressed in the lease. These should include what the tenant must do before vacating in relation to; repairs, reinstatement, redecoration.
Need help with a lease or dilapidations claim?
Dilapidations can be complex, but with the right legal advice, tenants can protect themselves from costly disputes.
Whether you’re drafting a new lease or responding to a schedule of dilapidations, our Commercial Property team at Bromleys is here to help.
Call us on 0161 330 6821 or email bromleys@bromleys.co.uk for expert guidance.