A Beginner’s Guide to Dilapidations Costs
What Are Dilapidations?
What Is Included In Dilapidation Costs?
How Can You Estimate The Cost Of Repairs and Restoration?
What Factors Influence The Final Dilapidations Outcome?
When To Call In A Professional For Dilapidations?
A Beginner’s Guide to Dilapidations Costs
If you have signed a commercial lease it will include clauses related to the tenant’s obligations. These will include returning the property to its original condition when they move out. Rather than do the work themselves, most tenants pay the landlord for any required work. The term “dilapidations” is used to describe this process.
The dilapidation costs process is well established. It allows landlords and tenants to end a lease fairly and transparently. The key to success is agreeing on the amount of compensation a landlord is due for damage, wear and tear or other changes that have occurred over the lease period.
What Are Dilapidations?
One way to view dilapidations is the ‘exit costs’ for any leased building. It costs to restore the property to its original state for the next tenant. The dilapidation process allows landlords to be fairly compensated.
Dilapidations typically include repairs and redecoration. They are also likely to include tenant signage, partitioning, cabling, carpeting and fitted furniture. According to UK Law, dilapidation costs cover all that is required for a commercial landlord to return the property to a lettable state.
Opinion, of course, varies here between landlords and tenants. The former will look to maximise their claim while tenants will wish to minimise their costs. This is why establishing costs usually requires the expertise of independent Dilapidations professionals.
What Is Included In Dilapidation Costs?
The Law does not define dilapidations in detail. It is important, therefore, to check how they are defined in any signed lease document before moving forward. Based on our experience, however, we have collated the following list of items normally considered.
Removing of furniture
Taking down partitioning and internal fixtures
Stripping of cabling and telecoms equipment
Clearing signage and branding
Replacing kitchens and bathrooms
Replacing carpets
Repainting and redecorating
Replacing light fittings
Making structural repairs
Fixing material damage
Making general wear and tear good
Property and office dilapidation costs can also compensate landlords for the following
Loss of rental income
Loss in property value
Insurance losses
Professional costs
Legal costs
The detail should be defined in your lease document. If it’s not, it is probably useful to talk to an expert before you enter into negotiations.
How Can You Estimate The Cost Of Repairs and Restoration?
Reputable landlords will ask professional Chartered Surveyors to estimate repair and restoration costs. They will identify the work required and establish the impact on a property’s value. This estimate may, unsurprisingly perhaps, differ from the tenant’s view. It is important for tenants to gather evidence of their own. This is normally done through commissioning their own Chartered Surveyor’s report. The two parties will typically negotiate an agreed cost referring to both reports. The widely published Dilapidations Protocol provides guidance for tenants, landlords and their representatives. Its stated aim is to prevent disputes from ending up in Court.
The Protocol was published by the Property Litigation Association in 2002. A second edition was issued in 2006. From 2008 to 2011 the Association and the Royal Institution of Chartered Surveyors (RICS) partnered with the Civil Justice Council to refine the document’s wording. The Protocol was fully adopted in 2012.
The protocol mandates landlords and tenants both employ professionals to estimate dilapidation costs. In cases where agreement seems impossible, a third independent survey should be used to establish costs.
What Factors Influence The Final Dilapidations Outcome?
Disputes can be avoided by following the Royal Institution of Chartered Surveyors (RICS) Guidance Notes.
They provide governance on the following issues.
The role of the surveyor
How to instruct surveyors
The required documentation
The best form of inspection
The standard Schedule of Dilapidations format
The standard quantified demand format
Ideal response and counterclaim formats
Following the above guidance makes it more likely dilapidation cost estimates will be accepted without dispute.
When To Call In A Professional For Dilapidations?
If you are a landlord, we would recommend an independent Chartered Surveyor supports your initial dilapidations estimate.
A tenant is likely to question details from elsewhere. If you accept a landlord’s dilapidation claim as a tenant there is no need to engage with third parties.
However, if you wish to challenge the cost estimate you will need to talk to a surveyor of your own.
Fresson & Tee has a wealth of experience working on behalf of landlords and tenants. We are experts in all aspects of dilapidations and can provide accurate cost estimations as well as advice on repair and rectification works themselves.
If you would like to discuss your dilapidation requirements further, please call our office on 020 7391 7100 or email us at surveyor@fandt.com.