Dilapidations clauses in commercial leases
A dilapidation clause refers to the work a tenant is required to carry out on the property during and at the end of their lease agreement. Unlike a residential leasing agreement where the onus is usually on the landlord to cover general wear and tear, the obligation lies directly with the tenant when it comes to commercial property.
Dilapidations clauses can cover:
- Repairing any damage to the property
- Redecorating the property
- Returning the property to the state it was in prior to the lease began
The level of work required will ultimately depend on the terms agreed in the lease contract but standard contracts usually require the tenant to undertake repairs to the entirety of the property - both internal, external, including the structure of the building.
Schedule of condition and schedule of dilapidations
An honest landlord will draw up a ‘schedule of condition’ before the lease is signed that is agreed between both parties and is appended to the lease. This sets out a clear understanding of the state of the premises at the commencement of the lease.
In longer term leases, the landlord may also draw up an interim ‘schedule of dilapidations’ which lists the disrepair alleged by the landlord and the remedial works that they wish the tenant to undertake. The idea being that if the repair work is not all left until the end of the lease, the building will be better maintained and there are likely to be fewer disputes at the end of the contract.
In some cases, the tenant will have to leave the premises in a significantly better condition than they were in at the start of the lease if the wording stipulates ‘a good state of repair’ and the building wasn’t sufficiently checked before the agreement was signed. As a result, the tenant could incur a large, unexpected cost at the end of their lease due to the amount of work that is required.
Adding value to the property
However, in some circumstances, the renovations that a tenant carries out on a property can benefit both parties. If the tenants add features that improve the property it can be common for landlords to want to retain these enhancements. For example, a glass wall partition wall or tech/IT additions may make the premises more attractive to future tenants and therefore, if agreed with the landlord, the tenant may not need to spend time and money reversing the changes made.
Where the additions add significant value to the property, the tenant may even be able to renegotiate their fees or make a separate agreement about the dilapidation costs.
In their eagerness to secure a new premises, many business occupiers don’t fully read or understand their lease, or sign the lease regardless, which can be eye-wateringly expensive at the end of the term.
Although there are some standard terms and conditions in all contracts, each leasing agreement may be slightly different and just a small change in wording can mean a big difference to the tenants’ rights. Even the most experienced tenant may benefit from getting support from an experienced solicitor to ensure they understand every single one of their legal obligations when it comes to securing new premises for their business.