The Benefits of Early Dilapidations Consideration

Challenge
During the terms of a commercial lease, tenants are under an obligation to keep their property well-maintained and decorated, and any demise in repair. In many cases, these obligations tend to be overlooked whilst the tenant is in occupation.

Such oversight often leads to increased void periods and expenses for the landlord at the time of lease expiry, not all of which is recoverable.

In most cases, the matter of dilapidations is therefore rarely considered until after a lease has expired and the tenant vacates the premises. This often leaves the landlord with a building in disrepair, poor condition and unsuitable for the market. This, in turn, creates long voids, increased costs and marketing with the need for significant incentivisation.

A further frustration is the protracted negotiations post lease expiry, which can again be costly and often provide the tenant with an opportunity to mitigate their obligation – in some case considerably.

Solution
To minimise such an impact, a proactive approach is key.

In addition to monitoring a tenant’s occupation during the lease term, once it is clear that a tenant is vacating, a number of actions should be implemented.

A preliminary Schedule of Dilapidations should be prepared 6 – 12 months before lease expiry or immediately after a tenant serves notice.

This course of action results in an early understanding between both landlord and tenant as to what is expected in compliance with the yield up provision.

This preliminary stage enables the tenant to instigate early discussions and/or complete works prior to expiry.

In instances where a financial settlement is preferred, such early agreement and settlement enables dilapidations to be concluded prior to expiry, thus ensuring the landlord has funds to complete the works.

Benefits of Early Dilapidations Consideration
The benefit of this early involvement is two-fold: either a property in a state of demise is delivered back ready for market, or the landlord is immediately in funds to complete repair works.

Both approaches minimise void periods; an outcome particularly desirable to those in the currently tricky retail market.

How Can Hartnell Taylor Cook Assist
Having extensive experience of representing managed portfolios, we fully understand and appreciate the importance of early intervention.

Our course of action includes a review of the portfolio terrier to highlight those demises where lease expiries are imminent.

From this, a short list of leases due to expire within 12 months is drawn up. These properties are then inspected and a preliminary Terminal Schedule of Dilapidations prepared.

This is formally served, following which we would seek to engage with tenants to determine their intentions. Where applicable, we enter in to discussions and either negotiate a settlement or agree a scope of works to be completed prior to the lease expiry date.

Furthermore, a key factor to note is that most commercial leases incorporate a provision that enables a landlord to recover their surveyors and legal costs attributed to the preparation and service of a Terminal Schedule of Dilapidations. Some even enable the recovery of fees for negotiating a settlement.

Not only does this early action reduce voids and costs, it is in part cost neutral.

Contact:

Alex Moat – 0117 946 4596

Matthew Sharkey – 020 7788 3836 

 

For further information:

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Hartnell Taylor Cook
5th November 2020