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Dilapidations Schedule
What is a dilapidation schedule? In basic terms, a typical Lease Agreement for a Commercial Property will contain certain Covenants, or “rules” that both parties have agreed to adhere to for the duration of the term. These largely relate to keeping the property well maintained, in good condition and free from any issues that may affect the lettable value of the asset. For more on an overview of dilapidations read here.
When the Lease comes to an end, or is nearing the end of the term, a landlord will typically produce a Schedule of Dilapidations in respect of any breaches of these Covenants that have accrued during the Tenant’s occupation resulting in damages.
As an example, failure to keep the Demised Premises in good and substantial repair resulting in the Landlord having to undertake repairs. The cost of these repairs will be set out within a Dilapidations Claim.
We act for both Landlords and Tenants on all Dilapidation-related matters.
Who is affected by dilapidations?
Both Landlords and Tenants can be affected by Dilapidations. Essentially, the Lease is a contractual agreement between a Landlord and Tenant and therefore either party can be exposed to Dilapidations.
It is not uncommon for a proactive Tenant to request their own Dilapidations Liability Report setting out their likely exposure prior to cessation of their lease term. This allows them time to consider their position and plan a strategic exit: Refer to our Dilapidations Liability Assessment Service for more information.
The most common form of Dilapidations Claim will be served on the Tenant and will set out breaches of covenant and a quantified demand.
This position can be protected by a Schedule of Condition prior to entering into a Lease Agreement
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Dilapidations Schedule and the lease
A Commercial Lease is typically drafted on fairly common institutional terms and will covenant the tenant to Tenant to keep the Demised Premises in good condition. In some cases, the Lease may require the Tenant to firstly put the Demised Premises into good condition and then maintain it as such.
As the Lease is nearing its end (typically within 12-6 months from the lease termination date) the Landlord will instruct a Chartered Surveyor to undertake a Dilapidations Survey. Depending on when this is undertaken, it will be considered an Interim, or Terminal Schedule as per the Dilapidations Protocol.
The dilapidations schedule will seek to set out breaches of covenant and the remediation necessary in order to put the Demised Premises back into the condition it was prior to the Lease date. This schedule is referred to as being a Scott Schedule and will contain an appended Quantified Demand in respect of damages.
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When Should a Survey be Carried Out?
We recommend that Dilapidations are considered as early as practicably possible. Both parties should be proactive in their approach to Dilapidations in order to mitigate any potential dispute.
We often act for Landlords within the last 12 months of the Lease Term though often act for Tenants much sooner. A Landlord should be considering cessation of the Lease Term in order to strategise any potential letting and facilitation works that may be necessary.
A Tenant should always be mindful of their exit within the last 12 months of the term. Any works undertaken early (such as reinstatement of alterations and cyclical decoration) will have a positive affect on any potential Dilapidations claim.
What is the dilapidation protocol?
According to Jusitice.gov.uk the Dilapidations Protocol applies to commercial property in England and Wales and seeks to standardise the way in which claims for damages for dilapidations against tenants at the termination of a tenancy are addressed. These are generally referred to as terminal dilapidations.
There is a separate Pre-Action Protocol for Housing Disrepair cases: refer to our Housing Disrepair Services for more information.
It is often hoped that disputes can be avoided though in some cases the parties (Landlord and Tenant) cannot agree on a suitably amicable solution. The Protocol sets out conduct that the courts would typically expect prospective parties to follow prior to the commencement of proceedings. It is widely recognised that proceedings are costly and should be avoided wherever possible.
The Protocol establishes a reasonable process and timetable for the exchange of information relevant to the dispute, and sets standards for the content and quality of schedules and any accompanying Quantified Demands. The protocol places specific focus on pre-action behaviour of both parties.
The Protocol sets our primary objectives aimed at the avoidance of costly litigation and promotes early exchange of information appertaining to the dispute, supports the efficient management of proceedings should litigation become unavoidable and seeks to promote early settlement.
Surveyors are given 56 days to share information respectively, once a Schedule has been served and are encouraged to meet as often as is necessary in order to reach a settlement.
What actions can a landlord take if there are dilapidations?
If a Landlord believes that the Tenant has failed to adhere to the terms of the lease, in particular their repairing obligations, reinstatement of alterations and re-decoration (amongst others), they should seek professional advise from a Chartered Surveyor with experience in dealing with such matters.
Typically, we would require sight of all Leases, Licences to Alter, Schedules of Condition and any other documents that may have a direct effect on the Dilapidations process.
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