Everything you need to know about commercial property dilapidations

Dilapidations are an important part of the office relocation process, and without careful planning, they can become a costly and complex issue. At Making Moves, we help businesses simplify the process, offering expert advice backed by extensive market knowledge. On average, we help tenants save 60% from their initial claims, ensuring they only pay what’s fair.

In this guide, we’ll break down everything you need to know about dilapidations, from key definitions and legal responsibilities to managing costs, tax implications, and handling disputes. By the end, you’ll have a clear understanding of how to approach dilapidations strategically and minimise financial risks with the right support.

What are dilapidations?

Defining dilapidations

Dilapidations refer to the repairs, reinstatements, and maintenance obligations a tenant must carry out before vacating a leased commercial property. Most leases include clauses requiring tenants to return the property to its original condition—failing to do so can result in significant financial claims from landlords.

Key terms you need to know

Schedule of dilapidations – A document outlining the repairs a landlord expects the tenant to carry out before the lease ends.

Interim vs terminal dilapidations – Interim schedules are issued during the lease, while terminal schedules are issued as the lease comes to an end.

Yield up clause – A lease term that specifies how a tenant must return the property when vacating.

Schedule of condition – A record of the property’s condition at the start of the lease, used to compare against its state at the end.

Understanding lease obligations and legal aspects

The legal process of dilapidations

Landlords can serve a Schedule of Dilapidations before a lease expires, outlining the repairs or reinstatements required under the terms of the lease. If tenants fail to carry out these repairs, landlords may seek financial compensation through a dilapidations claim. 

Understanding the legal timeline and process is key to ensuring businesses can manage costs effectively and avoid unnecessary disputes. Below, we answer some of the most common questions about the legal aspects of dilapidations:

When and how can a landlord serve a Schedule of Dilapidations?

A landlord can serve a Schedule of Dilapidations either during the lease term (interim schedule) or towards the end of the lease (terminal schedule). This document outlines the repairs and reinstatements required by the tenant under the lease terms. 

Terminal schedules are more common and typically form the basis of financial claims if repairs aren’t completed.

How long does a landlord have to bring a dilapidations claim?

Landlords usually have six years from the end of the lease to bring a dilapidations claim, though claims are most commonly pursued immediately after the lease expires.

How long does a tenant have to respond to a Schedule of Dilapidations?

A tenant typically has between 14 to 56 days to respond, depending on lease terms and the landlord’s request. The Dilapidations Protocol states that a landlord should give a tenant a reasonable amount of time to respond to a Schedule of Dilapidations – though seeking professional advice immediately after receiving a schedule is advisable.

What happens if a tenant disputes a dilapidations claim?

If a tenant disputes the claim, they can request a second opinion from an independent surveyor. If the dispute escalates, negotiations, mediation, or legal proceedings may be necessary to reach a fair settlement.

Who prepares and serves a schedule of dilapidations?

A Schedule of Dilapidations is typically prepared by a chartered surveyor acting on behalf of the landlord. The schedule outlines any breaches of the lease terms related to the condition of the property, repairs, or reinstatement obligations.

Can tenants challenge a Schedule of Dilapidations?
Yes, tenants are entitled to seek their own surveyor’s assessment to challenge or negotiate claims. This can help ensure that costs are fair and aligned with lease obligations, rather than overinflated by the landlord.

Survey and reporting: What’s involved?

How are dilapidations assessed?

A dilapidations survey assesses the property against lease obligations. It involves:

• Identifying damages or alterations made by the tenant
• Determining reinstatement and repair costs
• Reviewing lease clauses to assess liability
• Providing an accurate assessment of financial liability and the cost of remedial works

Do you need a specialist dilapidations surveyor?

A dilapidations surveyor can help tenants challenge unfair claims and reduce costs. While not legally required, hiring an expert often results in better negotiation outcomes. A specialist surveyor can:

• Assess the accuracy of the landlord’s claim
• Provide expert evidence for disputes
• Negotiate a fair settlement on the tenant’s behalf
• Advise on alternative solutions to full reinstatement, such as financial settlements

At Making Moves, we have helped businesses save both time and money by guiding them through the dilapidations process, ensuring they only pay what is necessary and securing fair settlements with landlords.

Estimating and managing dilapidations costs

How are dilapidation costs calculated?

The cost of dilapidations can vary significantly depending on several factors:

• Scope of Required Repairs – The extent of repairs needed to restore the property to its original condition.
• Property Condition at Lease Commencement – If a Schedule of Condition was created at the start of the lease, it provides a benchmark for assessing deterioration.
• Market Rates for Repairs – The cost of materials, labour, and contractor rates can impact overall expenses.
• Landlord’s Approach – Some landlords may seek a full reinstatement, while others may be open to negotiating a financial settlement instead.
• Mitigation and Reasonableness – The law requires landlords to mitigate losses and ensure repair costs are reasonable. Tenants can challenge excessive claims based on these principles.

Who pays for what?

The tenant – Responsible for meeting lease obligations outlined in the lease agreement. This includes carrying out necessary repairs, reinstating any alterations made to the property, and, if required, paying financial compensation if repairs are not completed before vacating the premises. Tenants should ensure they fully understand their obligations to avoid unnecessary costs.

The landlord – Typically responsible for general maintenance, structural repairs, and wear-and-tear issues that are not directly caused by the tenant. However, some leases may shift certain maintenance responsibilities to the tenant, making it essential to review lease terms carefully. Landlords must also ensure that their claims are reasonable and that they have taken steps to mitigate any losses before seeking compensation from the tenant.

How to estimate dilapidation costs

To estimate dilapidation costs accurately, tenants should take a proactive approach by assessing their lease obligations early and seeking expert advice. 

Here are some key steps to take:

• Conduct early assessments – Reviewing potential dilapidations before lease expiry helps tenants plan financially and avoid last-minute surprises.
• Review lease clauses – Understanding your lease obligations ensures you know what repairs or reinstatements are required, helping to avoid disputes with landlords.
• Obtain a professional dilapidations survey – A specialist surveyor can provide an accurate estimate, challenge inflated claims, and support negotiations.
• Consider Negotiation Strategies – Some landlords prefer a financial settlement rather than full reinstatement, which can be a cost-effective alternative for tenants.

Want a tailored estimate of your potential dilapidations costs? Use our Office Dilapidations Cost Calculator to get expert insights based on your lease details. Simply provide a few key details, and our team will help you understand your potential liabilities—so you can plan with confidence.

Tax, accounting, and VAT on dilapidations

Are dilapidations tax deductible?

We often get asked whether dilapidations costs are tax-deductible or not. The answer depends on how they’re classified for accounting purposes:

• Revenue Expenditure – If dilapidations costs are considered a normal business expense, such as ongoing repairs or maintenance, they may be deductible against taxable profits in the year they are incurred.
• Capital Expenditure – If the costs relate to structural improvements or restoring the property beyond its original condition, they may be classified as capital expenses and are typically not immediately deductible but may be eligible for capital allowances.
• Composition Payments – If a tenant agrees to pay a composition payment (a sum paid to the landlord instead of carrying out the repairs), part of this payment may be tax-deductible. If the payment reflects deferred repairs that would have been deductible if completed earlier, it can be allowed as a revenue expense. However, if it includes capital costs, such as structural improvements, it is not deductible.
• Corporation Tax Provisions – Businesses can set aside a provision for dilapidations in their accounts, but whether this is deductible for tax purposes depends on whether there is a clear legal obligation to pay and the level of certainty that the expense will occur.

For the most accurate tax treatment, businesses should consult a qualified tax advisor or refer to HMRC guidelines for further clarity.

VAT and dilapidations claims

Is VAT applicable to dilapidations claims?

VAT on dilapidations claims is a grey area and depends on the nature of the payment. In most cases, dilapidations payments remain outside the scope of VAT, but tenants should review their lease agreements and seek tax advice to confirm their specific situation. 

It is always best to check the specific lease terms and seek professional tax advice.

Do tenants need to charge VAT on dilapidation settlements?

Whether tenants need to charge VAT on a dilapidations payment depends on the terms of their lease and the nature of the payment. If the settlement is purely compensatory—meaning the tenant is paying to exit their repair obligations—VAT may not be required. 

However, if the payment is considered part of a contractual obligation tied to a taxable supply (such as services provided by the landlord), then VAT could be chargeable. Tenants should clarify their position with a tax specialist to ensure compliance and avoid unexpected costs.

As VAT treatment can vary based on specific agreements and interpretations, businesses should always seek professional tax advice to confirm their obligations.

Disputing and negotiating dilapidations claims

How to challenge a dilapidations claim

If you receive a Schedule of Dilapidations, you are not obligated to accept the claim as-is. Many landlords overestimate repair costs or include items beyond what the lease requires, so it’s important to scrutinise the claim and negotiate where necessary.

Steps to Challenge a Dilapidations Claim:

1. Review the Claim in Detail – Check whether the listed repairs are genuinely required under your lease agreement. Some landlords include pre-existing damage or maintenance issues that are their responsibility.
2. Request Justification – Ask the landlord for a breakdown of costs, contractor quotes, and evidence supporting their claim. A fair claim should be transparent.
3. Seek Expert Advice – A dilapidations surveyor can assess the claim, provide a second opinion, and help you negotiate a fair settlement.
4. Compare Costs – If the landlord’s estimated repair costs seem excessive, obtain independent contractor quotes to use as leverage in negotiations.
5. Negotiate a Settlement – Instead of completing the work yourself, you may be able to agree on a lower lump sum payment, which could save time and money.
6. Use the Section 18(1) Defence – Under The Landlord and Tenant Act 1927, landlords cannot claim more than the reduction in property value caused by the tenant’s breaches. If the repairs wouldn’t materially affect the property’s rental or resale value, this can significantly reduce your liability.

If a dispute arises and an agreement cannot be reached, tenants can escalate the issue through mediation, arbitration, or legal action to ensure they are not overpaying.

Avoiding dilapidations disputes

The best way to reduce stress and financial risk is to proactively manage dilapidations before the lease ends.

Proactive Steps to Avoid a Dilapidation Dispute

• Plan Ahead – Start assessing potential dilapidations at least 12–18 months before lease expiry.
• Maintain the Property Throughout the Lease – Keeping up with minor repairs and maintenance prevents issues from escalating.
• Obtain a Schedule of Condition at Lease Start – This serves as evidence of the property’s original state, preventing landlords from claiming for pre-existing damage.
• Communicate with the Landlord Early – Discuss expectations before the lease ends to explore options for minimising claims.
• Get a Tenant Dilapidations Report – Having your own surveyor inspect the property helps challenge unfair claims and provides leverage in negotiations.

Can a Lease Be Terminated Due to Dilapidations?

Dilapidations alone do not usually give landlords grounds to terminate a lease unless specific lease clauses (such as a forfeiture clause) allow it. However, landlords can pursue legal action for unpaid claims once the lease ends.

What our Experts Say: Avoid these common dilapidation mistakes

 

Dilapidations can be a minefield for businesses navigating an office move. Hidden costs, unclear lease obligations, and last-minute claims often lead to unexpected financial surprises—but they don’t have to. Our expert agents share their key advice on how to stay in control and minimise costs.

“One of the biggest mistakes we see businesses make is leaving dilapidations until the last minute. It’s easy to assume you can handle it at the end of your lease, but the reality is that landlords often overestimate costs, and tenants aren’t always aware of their rights. By getting expert advice early, businesses can challenge inflated claims, negotiate fairer settlements, and avoid unnecessary expenses.”

— Jack Roberts, Associate Director at Making Moves

Top tips for managing dilapidations effectively

• Start early: Plan for dilapidations well before your lease ends.
• Know your lease: Understanding your obligations helps avoid disputes.
• Don’t accept claims at face-value: Many landlords overestimate costs—challenge them where necessary.
• Get expert support: A professional assessment can help negotiate costs down.

At Making Moves, we help businesses manage dilapidations strategically—whether it’s reviewing claims, reducing costs, or ensuring a smooth transition to your new space. 

Need expert advice on dilapidations? Get in touch today to make your office move stress-free.

Case Study: How we slashed ComeOn’s dilapidations costs 

 

When ComeOn exited their office space, they were served with an inflated dilapidations claim from their landlord—an all-too-common issue that can result in unnecessary costs for businesses.

Using our market expertise and in-depth knowledge of current exit costs, our team successfully negotiated the claim down to zero, saving ComeOn significant time and money. In addition to eliminating their dilapidations liability, we also secured £1.3m in savings on their new office space, despite strong competition from other companies.

At Making Moves, we ensure businesses only pay what’s fair when exiting a lease. Whether it’s reviewing claims, negotiating with landlords, or securing cost savings, we help our clients navigate the dilapidations process smoothly and efficiently.

Want to see how we’ve helped businesses take control of their dilapidation costs? Explore our case study archive for real-world success stories.

Move forward with confidence with Making Moves 

Understanding dilapidations is a crucial part of any office move, helping businesses avoid unexpected costs and legal pitfalls. From knowing your lease obligations to managing costs and negotiating claims, being proactive can save both time and money.

At Making Moves, we specialise in guiding businesses through the complexities of commercial property moves—including handling office dilapidations efficiently. Whether you need expert advice on your lease, support in negotiating with landlords, or a strategy to minimise your liabilities, our team is here to help.

Want to dive deeper into dilapidations? Read our CEO & Founder’s insights in Dilapidations: A Necessary Cost of a Money-Making Exercise? 

Together, we can make your office move seamless. Contact us today to discuss how we can support your business through every stage of your relocation.