What are commercial lease dilapidations?
20 November 2019
In this series of articles we will be looking at commercial lease dilapidations. Our focus is to look at dilapidations affecting commercial properties (i.e. commercial property dilapidations). In some limited cases the principles we refer to apply to lease dilapidations affecting residential property and we will discuss these in more detail further below.
What are lease dilapidations?
This first article seeks to explain basic principles about lease dilapidations. We will be looking at their definition and terminology, when they arise, and why it is important for both landlords, tenants and anyone who works in property to understand them properly.
"Dilapidations" is the name given to the repairs or works which a tenant might be required to carry out at the end of a lease. The word "dilapidate" originates from the latin expression "dilapidare" (meaning "to waste"). Dictionaries provide a definition along the lines of "to fall into disrepair" or "to allow to fall into disrepair".
In any well-drafted commercial lease it will be extremely common to find a clause that requires a commercial tenant, both during the lease and at the end of the lease, to ensure that the demised property is kept in a good state of repair. They will also usually be required to insure the building, or at the very least to contribute towards the cost of insurance. In both of these circumstances the lease will be known as a "fully repairing and insuring lease" (or an FRI lease for short).
Other commercial leases might contain slightly different repairing obligations. In this regard it is reasonably common to find that tenants might only be required to put the property into no better condition than it was at the date they entered into the lease, as opposed to being required to put the property into good repair and condition. This is a less onerous repairing obligation and it is good practice for both parties to ensure that a surveyor (or someone else suitably qualified) has been appointed to prepare a schedule of condition, usually backed up with photographs, that accurately records the condition of the property at the date that the lease is entered into.
Irrespective of whether the tenant has signed up to a full repairing covenant or a covenant that is limited, it will be of significant importance to both parties (and, in particular, the landlord) to understand precisely what the scope of that repairing obligation might be.
The reason for this is because at the end of the lease, if the demised property is not delivered up to the landlord in accordance with the condition required by the lease, the landlord may have a claim against the tenant for damages. We will be covering damages claims in respect of lease dilapidations later on in this series.
What do the lease dilapidations relate to?
The place to start to answer this question is the repairing covenant in the lease. This should specify what parts of the building or property the obligation applies to. But this is not the only matter to consider. If during the term of the lease the tenant has asked for consent to carry out alterations, then the document authorising those works to be carried out may also contain covenants that set out the condition in which the property must be returned at the end of the lease.
When must the works be carried out?
Ordinarily the lease will require the works to be carried out so that the property is in the condition required by the lease when the lease comes to an end. The landlord may also require the tenant to carry out works during the term of the lease, although in practice this happens relatively infrequently.
Where repair works are necessary to make good any dilapidations, it is important for tenants to give themselves enough time to carry out those works before the end of the lease. This is because after the lease has ended tenants have no right to re-enter the property. Any lease dilapidations remaining at this point would then potentially form part of a landlord's claim.
If you have any questions about commercial lease dilapidations, or would simply like an informal chat with one of our dilapidations experts, please use the form below to get in touch.
“...at the end of the lease, if the demised property is not delivered up to the landlord in accordance with the condition required by the lease, the landlord may have a claim against the tenant for damages.”Michael Ellis, Senior Associate and Dilapidations Solicitor, Salisbury & London