Landlords beware

Broken chain can impact dilapidations claim

1 November 2018

Share this

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.”

Cooke & Arkwright have been providing rating valuation advice to The Welsh Rugby Union Limited (“WRU”) and Millennium Stadium plc for many years. They were recently successful in achieving substantial reductions in the assessments of the Millennium Stadium, covering both the 2005 and 2010 rating list. These negotiated reductions yielded savings of c.£3.5m which, crucially, allows the WRU to re-invest in rugby throughout Wales. They advise the WRU across the group portfolio including the National Centre of Excellence in the Vale of Glamorgan. The valuation issues across the WRU portfolio are complex requiring a high level of understanding of the funding and finances of professional sport in Wales. Cooke & Arkwright’s experience and understanding of these issues and application to the rating valuation have yielded these substantial negotiated reductions. The WRU and the Millennium Stadium entrust our work to organisations with the required levels in experience and expertise in dealing with these complex issues. I am glad to say we have this expertise in Wales. I would have no hesitation in recommending ratepayers making use of this Welsh based expertise.

Steve Phillips, Group Finance Director, Welsh Rugby Union Group