Dilapidations Considerations
Marketability
Open plan layouts are sometimes better because prospective tenants can see a blank canvas to plan their own layout.
Conversely some people have such difficulty visualising things, especially in a large open plan property that plans help people to see what they could do and therefore aid lettings.
Other people still prefer the partitioned usefulness of separate office space so you need to consider the type of property you are dealing with and the possible next use.
Sustainability
It could be a complete waste of time, money and materials if the exiting tenant reinstates the property at the end of the lease, perhaps removing internal partitions and the new tenant comes along and installs internal partitions in the same place. So if the timing is right it is worth discussing plans with the exiting tenant and the potential new tenant.
Financial settlement
It is possible to negotiate a financial settlement at the end of the lease instead of actually undertaking works. This is known as damages. This would mean that the exiting tenant does not have to waste time and resources organising the work. The landlord is not left out of pocket with a property that is not in repair and the incoming tenant could negotiate some rent free which the landlord could afford courtesy of the amount paid by the exiting tenant. There are of course downsides to this. What if not enough money was paid over? What if the premises is so badly left that it takes longer to market thus causing the landlord to be out of pocket whilst the premises are void?
Early negotiation helps however a landlord’s robust claim might drive the tenant to do the work anyway because they feel, possibly rightly so that they can get it done cheaper.
Cap on dilapidations
S18 of The Landlord and Tenants Act 1927 says that damages payable by an exiting tenant should be capped by the loss of value in the building. This actually gives a lot of protection to tenants. In practice I have not yet met a surveyor that has given me, as a property manager, a valuation which shows the diminution in value of the property. All dilapidations schedules are based on an inspection of the premises which notes any defects. The surveyor then refers each defect to the relevant clause in the lease i.e. repair or decoration and prepares a schedule of works that the tenant must do.
Possibilities
I try to include a clause which says reinstatement is only required if the landlord demands it at the end of the lease.
You should be aware though that this does place an obligation on the landlord for good management plans i.e. any reinstatement licence or side letter should be kept with the lease so that when you get to the end of the lease, the surveyor or landlord dealing with it knows what was agreed/changed. It also means that landlords may have to diary to tell the exiting tenant to reinstate especially if there is a time constraint on this.
It is useful though, for example in one property I have just let they have asked to put in a shower. As we draw to the end of the lease in 5 years time we should be able to gauge if people are likely to want a shower in the property or not. If this is not normal then we will probably say remove it but if it has shown to be a real benefit to users, then we may decide to allow the tenant to leave it in place provided it is in good condition.
Emma Catterall
Head of Agency and Property Management
