How Tenants Can Protect Themselves from Dilapidations In Commercial Property

In our tenant guide on dilapidations, we explain what dilapidations mean in the context of a commercial lease agreement. 

Dilapidations refer to the tenant’s repairing, redecoration, reinstatement and statutory obligations within a lease. Most claims come at the end of your tenancy, but landlords can raise issues earlier if your lease allows it.

Business owners and commercial occupiers must understand their responsibilities to avoid unexpected bills and costly disputes post-lease. Read on to learn more about your rights, obligations, and how to negotiate the dilapidations process successfully as a tenant.  

What are Dilapidations in a Commercial Lease?

Dilapidations are breaches of tenant obligations within a commercial lease, relating to the property’s physical condition. 

When you enter a  new lease as a tenant, you agree to put and maintain the leased property in a certain state of repair, meaning you’re obliged to return it to the landlord in the agreed condition.

Dilapidations outline the repairs, redecoration, reinstatement and statutory works for which you are responsible under the lease terms. These could include:

• Putting a property into repair
• Remedying any structural damage
• Replacing damaged Landlord fixtures and fittings
• Redecoration
• Removing alterations or additions you have made to the property 

The prime purpose of dilapidations is to protect the landlord’s asset and compensate them for losses they may incur in rectifying tenant breaches. They want to make sure tenants can be held responsible for any damage or deterioration that happens while they occupy their property. 

Schedule of Dilapidations (tenant guide)

A Schedule of Dilapidations is a formal document (often prepared by the landlord’s surveyor) detailing the tenant’s dilapidation obligations under the lease. 

While the schedule is usually served at the end of the lease, a landlord can raise issues earlier, if the agreement permits by way of a notice to repair or interim schedule of dilapidations.

There are three types of schedules:

1. Interim schedule of dilapidations: Tenants can receive an interim notice during the lease term. The idea is to prompt action regarding maintenance obligations and repairs.
2. Uncosted Terminal schedule: Served near lease expiry, this schedule outlines expected works before you leave. It gives you a chance to carry out the necessary repairs. 
3. Costed Terminal schedule: The final schedule is served post-lease, summarising the landlord’s claim for damages if works weren’t completed.

Why Understanding Dilapidations is Important for Tenants

Tenants who don’t understand dilapidations often face nasty surprises that could have been avoided, including large claims, disputes, or legal fees from landlords.  

A typical dilapidations claim covers:

• The full estimated cost of remedial works 
• Loss of rent (for any period the property is off the market due to the dilapidations)
• Professional fees, including legal and surveying
• Service charges and rates  

Understanding your responsibilities and being proactive helps you:

• Budget for repairs well in advance
• Defend inflated or unfair claims
• Negotiate reasonable compromises
• Prepare to challenge disputed demands
• Understand the Landlord’s future intentions for the property

What legal protection does a tenant have for an unfair dilapidations claim?

Defending a dilapidations claim typically centres on interpreting the lease and challenging any excessive or unreasonable demands. The law offers tenants certain protections here. 

Under the Landlord and Tenant Act 1927:

• Damages for disrepair are capped at the actual loss suffered. In practice, this means a landlord cannot claim more than the reduction in the property’s value caused by the tenant’s breaches (often referred to the diminution in value).
• If a landlord intends to demolish the building or carry out major structural changes that make the tenant’s repairs irrelevant, and the tenant can prove this, the landlord cannot demand damages for those repairs (referred to as supersession).

The Dilapidations Process: From Schedule to Settlement

The dilapidations process follows several steps governed by the Pre-Action Protocol for Commercial Dilapidations. This Protocol guides civil disputes that do not have a specific pre-action protocol, including dilapidations.

The key steps are as follows:

1. Receive the schedule: Once the lease expires, your landlord, or their legal advisors, will send you a detailed Schedule of Dilapidations. This lists all the alleged breaches, the required works, and an estimated cost.
2. Review and respond: You have a reasonable time to review the schedule with your commercial building surveyor, assess the claims, and prepare a formal Tenant’s Response.
3. Negotiate: Both parties are encouraged to hold a “without prejudice” meeting to negotiate disputed claims. The goal is to agree on a fair payment or for the tenant to perform the necessary works.
4. Dispute: If negotiations fail, the Protocol encourages alternative dispute resolution (ADR) like mediation before litigation is considered.

How Tenants Can Manage and Reduce Dilapidations Liabilities

Smart tenants take steps throughout their lease to minimise dilapidations problems. Here are the most effective approaches:

• Negotiate before you sign: Dilapidations problems often start with poorly negotiated lease terms. So, before signing anything, make sure the repair obligations and reinstatement clauses don’t unfairly load responsibility onto you. A well-balanced agreement limits your risks from day one. 
• Schedule of Condition: This survey documents the property’s condition before you move in, complete with detailed photographs. It’s your best protection against claims for damage that was already there when you arrived. Consider requesting or paying for one before taking on any lease. This Schedule must  be referenced in and attached to the lease for it to provide you with the required protection.
• Keep on top of repairs: The easiest way to reduce your end-of-lease costs is to conduct ongoing maintenance. Tackling small issues during your tenancy is more cost-effective than a sizeable repair liability at the end.
• Plan for the Lease end dilapidation claim. Obtain the view of an experienced dilapidations surveyor in advance (usually 12-18 months) of your lease end, so that you can budget for a claim and build this into your property exit costs. The surveyor can also advice you on defence strategies and practical steps you can take to allow you to control the risk and minimise the claim. 
• Engage a surveyor early: As soon as you receive a schedule of dilapidations, instruct your chartered building surveyor. They’ll tell you whether the claim is reasonable and make sure you only pay for what you’re actually responsible for. They can also negotiate with the landlord’s team on your behalf.
• Know your rights. Don’t assume the landlord’s demand is final. You’re entitled to dispute excessive or inaccurate claims through negotiated settlement, ADR, or the courts (if necessary). 

For Expert Commercial Dilapidations Advice for Tenants – Speak to Whybrow 

Whybrow has supported many commercial tenants through the dilapidations process, helping them understand their duties, secure fair settlements, and avoid overpaying or legal issues.  

If you’re nearing lease expiry or planning ahead, contact us or call 01206 577 667 today. Our team specialises in commercial lease matters and knows how to protect your interests. Let us guide you through the process with clear advice and practical support that resolves your situation successfully.