Commercial Blogs
January 24, 2023

All you need to know about dilapidation contracts

What is a dilapidation clause, what they mean for landlords and tenants and what are the risks of getting it wrong?

The term dilapidation is often confusing and can create utter horror for landlords - especially if they don't know what they are dealing with or get it wrong.

What is dilapidation?

Dilapidation is the term referring to the process a landlord needs to follow at the end of a lease. It looks to enable them to recover any loss they may have suffered due to the failure of a tenant to return their property to them in its former condition, with the landlord having to replace and restore any items in disrepair.

It relates to the disrepair and any maintenance required both during and at the end of a lease. Most dilapidation claims relate to commercial premises, and landlords usually seek to enforce the tenants’ obligations to repair under a lease agreement.

Any landlord failing to deal with the dilapidations issue could face severe financial implications. They are liable to losing vast amounts of money through a drop in value for the property, and through an inability to re-let until repairs are carried out.

How do you minimise the risks?

There will always be risks of dilapidations, as with any tenancy. Still, by seeking expert, professional advice at the earliest opportunity – through a solicitor and surveyor - these risks can be hugely minimised. 

It’s also advisable that landlords work with highly reputable companies that are experts in the field of commercial interior refurbishment. Find an organisation that understands how a dilapidation lease needs to work (for landlord and tenant), so there’s minimum impact to landlords when organisations move out or on to another place or space.

What are the dilapidation obligations for a landlord?

A landlord needs to outline a tenant's obligations as soon and as clearly as possible. By bringing in the advice of a surveyor early in the process, it will protect the landlord, so they can re-let their premises for the maximum price at the end of a tenancy without interruption from having to deal with the repairs on a property – which might prevent the landlord from achieving a rental income.

A ‘Schedule of Condition’ can be a very effective way of ensuring that a property is in good condition before a lease agreement is even signed. For example, you don't want a lease that states a property is in good condition when it isn't. And if drawn up by a dilapidations expert, it will act as a “third party endorsement” to underpin its effectiveness.

Be proactive with your due diligence.

By having a strategy in place you can also help minimise end-of-lease disputes. By having an agreed maintenance and improvement plan at the beginning of a lease agreement, your tenant can have the opportunity to contribute and form an agreement at the earliest possible stage.

A landlord should serve a schedule of dilapidations within a reasonable time on the tenant (no more than 56 days after end of tenancy). The landlord and tenant (or their legal advisors) should preferably meet before the tenant prepares a response to the schedule, on a 'without prejudice' basis.

An informative reference guide to a landlord's obligations is outlined here -

Leasehold Dilapidations Information. It outlines obligations for the landlord and tenant and has an easy-to-follow guide.

What are the dilapidation obligations for a tenant?

By collaborating with tenants within a strategy, a landlord is advised to request that tenants keep safe records of everything from the start of a lease negotiation to the end.

For example, a commercial lease could have several different obligations for the tenant to repair and maintain a property:

- Repairing covenants by keeping up with repairs and ensuring a property is in good condition.

- Decoration covenants – decorating the inside of a property.

- To relinquish property in good condition at no extra cost to the landlord.

- To deal with any alterations and restorations.

- Complying with any regulations.

How can we help you?

As a tenant, when you choose to work with Diamond Interior Contracts who specialise in commercial refurbishment you work with us as a partnership. We provide a project manager who knows how to organise any dilapidations work in order to fulfil your legal obligations and minimise disruption. 

For landlords we remain cognisant that you want to ensure that your property is put back in a condition that will achieve the optimum in re-letting both in terms of time to get it back on the market and for the space to be the best layout for the current market within the constraints of the legal clause.

Our desire is to save all our clients time, money and unnecessary stress. 

As a landlord or tenant, you need to be aware of your legal obligations before, during and at the lease end of a contract. Having a preliminary conversation with one of the Commercial team at our recommended solicitors, Berry and Lamberts, could provide you with sufficient information to ensure you know clearly what your obligations are so there will be no surprises at the end of your lease.

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