Landlords beware

Broken chain can impact dilapidations claim

1 November 2018

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Modern commercial leases will contain repairing, reinstatement and redecoration clauses which place strict obligations on the tenant during and at the end of the agreed lease term.

If at the end of the lease term the landlord is able (and willing) to retain the tenant, a new lease will be prepared and entered into.

In this instance, the new lease should either:

  • Refer to a schedule of works the landlord requires the tenant to complete pursuant to the terms of the old lease.  In this way the landlord can ensure that the dilapidations which occurred during the initial lease can be claimed for at the end of the new lease, OR
  • Specifically reference the covenants contained in the old lease, particularly in respect of reinstatement and clarify that the tenant will still be liable for any dilapidations which occurred during the initial lease.

Often, the new lease will not contain any reference to the prior lease and therefore the tenant will not be liable to reinstate any alterations they carried out during the initial lease. Such alterations will become landlord’s fittings. In a large property where extensive fit outs have been carried out this can incur the landlord significant costs.

George Watts, Associate with Cooke & Arkwright’s Building Consultancy says, “We have encountered this problem on several occasions. On a recent terminal dilapidations instruction we found that the former tenant, a bank, was not liable to remove its old serving counters.

“The bank had been in occupation for twenty years with a new lease being entered into after an initial 10 year term. It was clear the counters were installed during the first 10 year lease; however, there was no reference to the fit out in the new lease or any reference linking the terms of the older lease to the new lease.

“Due to the poor wording of the lease the landlord was unable to include the removal of the tenant’s fit out in the terminal schedule of dilapidations.  

“Landlords should seek expert advice from a surveyor and/or solicitor to ensure they are not limiting their tenant’s liabilities when agreeing a new lease.”

I have worked with Jeremy Symons over the past three years successfully leasing and buying property in support of my business. I continue to be very pleased with his knowledge of the market and expertise. Our relationship over this time has resulted in acquiring 20,000 sq ft at Capital Business Park in Cardiff, leasing 11,000 sq ft at Southpoint, and subsequently leasing an initial 42,000 sq ft at Parc Bedwas, followed by a succession of expansions of a further 11,000 and then 47,000 sq ft, enabling us to centralise all of our operations at Parc Bedwas in a single 100,000 sq ft facility. The acquisitions were completed at the perfect time for tenant purposes and the rent fixed throughout the term at very economical rates. A job well done.

Bob James, Aerfin