A guide to office dilapidations
Don’t let the long name scare you, dilapidations are not as complicated as they might initially sound. In this guide, we will walk you through what exactly dilapidations are, who is responsible for them, and how to navigate the process.
While dilapidations can be a cause of stress for some businesses, when not properly thought through, we want to help make the process as simple and cost effective as possible for your business. Because you likely have better things to be spending your time and money on.
What are dilapidations?
So without further ado, what actually are dilapidations? Well simply put, dilapidations refer to the restoration of a commercial property back to the state it was in before you moved in. Therefore this includes repairing any damages, and removing or reversing any amendments or modifications you have made to the office space – whether just branding the space, or bigger structural changes like knocking down walls.
Think of dilapidations like an exit cost, so that the landlord can return the premises back to a ‘blank canvas’ for the next tenant. Unsurprisingly, dilapidations can be a point of contention between landlords and tenants – especially when there’s a disagreement about how much the tenant should have to pay. When not planned for properly, dilapidations can often lead to damaged relationships with landlords, and unexpected charges for tenants.
This is why it’s so important to be clear about your dilapidation terms from the outset of your lease – so you know exactly what you’re agreeing to when you sign your contract. While dilapidation costs can sometimes be negotiated down, it is the terms of your lease that will allow you to do so, so plan with this in mind to put yourself in the best position possible at the end of your tenancy.
What do dilapidations involve?
Now that you know exactly what dilapidations are, let’s look more closely at what they cover.
Returning the office space to its pre-tenancy state typically includes reversing alterations made during the tenancy, such as removing stud walls or partitioning, and restoring the original layout. Redecorating and repainting the walls back to their original colour (usually white), and refurbishing kitchen and bathroom facilities if these have been altered. This also includes returning the flooring, tiles and ceiling back to their original state.
Additionally, the tenant will likely be required to rectify surplus power cables and electricals, and address any issues related to the air conditioning or HVAC systems. The tenant must also ensure compliance with updated standards and building regulations. Finally, the office space must be left clean and tidy – with any waste disposed of.
It’s important to note that even if the premises have undergone improvements, such as just cosmetic changes – dilapidation clauses could still apply. While you may feel that the changes you have made have improved the commercial property, and has made it a more attractive offering for new tenants, the landlord may not see it this way. Although it may seem counterintuitive, the landlord may still require you to restore the space to its original condition.
Some landlords may agree to undertake an assessment of the office space to determine the scope of work needed by an unbiased third party. Having a collaborative discussion with your landlord can sometimes help come to a middle ground with your dilapidations, that can meet the needs of both parties without leading to disputes or legal entanglements.
How much do dilapidations for an office cost?
The all important question – well the actual cost of office dilapidations can vary wildly, depending on the scope of any changes made.
Initial cost estimations are typically drafted by a building surveyor, providing an overview of the necessary remedial actions.
The total cost of the dilapidations therefore varies significantly based on the extent of alterations or damages made during the tenancy period, and the time in which these take to resolve. Because of this, it can be difficult to calculate an approximate cost per square foot. In our experience, the average settlement for an office dilapidations is £15 – £25 per square foot. But remember, this varies depending on the fitout spec and the usage of the commercial property space in question.
For a more accurate calculation based on your own commercial space, get in touch with our expert surveyors today.
Who pays for dilapidation costs?
When it comes to office dilapidations, the responsibility for covering the cost of repairs typically falls upon the tenant who occupied the commercial space during the lease period. Any required repairs, restorations, or reinstatements outlined in the schedule of dilapidations are therefore the financial responsibility of the tenant.
Failure to comply with these obligations might result in the tenant being held financially accountable for the costs incurred. The specifics of these obligations will be outlined in the lease agreements and subject to the terms, conditions and any negotiated settlements between the tenant and the landlord.
If you think the cost of your building dilapidations are unreasonable, you can seek out legal advice to assess whether the claims are fair and in line with the terms of your lease, which can help you negotiate a more reasonable settlement with your landlord. Hiring a chartered surveyor to carry out an independent assessment of the property’s condition can also act as valuable evidence in challenging these claims.
If you do want to dispute these claims, remember to keep a record of any communication with your landlord, as well as a record of the repairs and improvements made to the office space, and to seek professional advice before taking any legal steps.
Remember to review the terms of your lease agreement carefully to understand your obligations regarding dilapidations.
When should dilapidations be carried out?
To minimise disruptions, many businesses choose to begin dilapidations once the premises have been vacated. Though this may mean that you will have to pay additional money to cover the lost rent of the space while your dilapidations are being carried out. This is where the phrase ‘lease end dilapidations’ comes from.
Alternatively, some landlords prefer to make regular inspections of the commercial property throughout the tenancy, to identify any necessary repairs as soon as they arise. This is known as interim dilapidations, and this can be a good way of giving the tenant plenty of time to make any necessary repairs. It is also beneficial for the landlord, as it can help them get their next tenant moved in at a quicker speed.
Promptly addressing dilapidations means tenants can ensure compliance with the terms of their lease, mitigate any additional rent obligations and circumvent the risk of prolonged legal disputes or financial penalties stemming from unresolved dilapidation issues. Legally, a landlord will have 6 years from the end of your lease to commence a dilapidation claim – so don’t be thinking you’ve gotten away with something that could come back to bite you.
What is a dilapidation survey?
A dilapidation survey is an in-depth assessment of a building’s present state, documenting its structural integrity as well as any existing defects, damages or wear and tear. The survey aims to comprehensively evaluate the property’s condition, both internally and externally, encompassing the fixtures, fittings and systems. Generally these take place towards the end of a tenancy.
A dilapidations survey is carried out by a chartered surveyor, and the tenant is usually liable for the cost of this. The survey will contain a detailed, and itemised cost of the claims, including the cost of cleaning and removal, as well as any repairs and restoration costs.
The dilapidation survey informs the schedule of dilapidations for the tenant (keep reading to find out more about this), though many tenants then request their own surveyor to carry out a similar inspection of the premises, to help them prepare a response to the landlord schedule. This identifies any areas where the tenant disagrees with their liability for dilapidations.
What is a dilapidation schedule?
A dilapidation schedule, as the name suggests, is a formal document listing the necessary repairs, reinstatements and/or improvements required on the commercial property at the end of its lease, that have been identified within the dilapidation survey. It is a more detailed version of the dilapidations survey, and acts more like an action plan – outlining the cost estimates associated with each breach, photographic evidence of the breaches, and the time frame that they need to be rectified within.
As a general rule of thumb, a schedule of dilapidations should be served to the tenant within 56 days following the end of a lease, to ensure the tenant has a chance to respond – though this timeline varies depending on the terms of your lease agreement. This gives the tenant time to review the claims made by the landlord, assess the property’s conditions themselves, and seek professional advice if necessary.
The dilapidation schedule is typically served at the end of a lease, though it can also be served during the term of the lease if the landlord sees fit – this is referred to as ‘interim dilapidations’. Alternatively, a tenant can seek out an ‘anticipated schedule of dilapidations’ part way through their lease, to help them budget for repairs and reinstate liabilities before the end of their tenancy.
Accounting for dilapidations advice
While we have tried to simplify the process of dilapidations throughout this guide, the accountancy of dilapidations can be quite complex and will usually require specialist advice. Seeking professional guidance from accountants experienced in commercial property laws can help you understand the implication of dilapidation liabilities, how they are accounted for in financial statements and the potential impact on your businesses balance sheet.
A common question regarding dilapidations is whether or not they are a tax-deductible expense. Again, this is a complex matter and subject to a variety of different factors – therefore, it’s crucial to seek advice from tax experts or accountants specialising in property tax to ensure accurate handling of these expenses.
I need additional help with my dilapidations
Office dilapidations can be tricky, so if you still need additional help, get in touch and one of our expert agents can help guide you through the entire process.
Making Moves can help you with your dilapidations
As you can likely tell, dilapidations can be a highly contested area of any commercial property lease – so make sure you know exactly what to expect when it comes to your own lease agreement. From understanding the ins and outs of your contract terms, to anticipating the likely costs of any repairs – planning ahead can help you avoid any nasty surprises at the end of your tenancy.
For personalised help dealing with dilapidations, or for help finding your next London office space – chat with a member of our team today!
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