Rund's Senior Surveyor, Stephen Seeney, comments on how landlords and tenants can protect both their physical and financial assets as COVID sparks a potential increase in dilapidations matters.

“The global pandemic has played havoc on the property industry. Many businesses are now questioning whether the function of their property is still economically viable and are also debating how much space they realistically need. As a result, many landlords and tenants have been reassessing their leasing requirements, and dilapidations claims will likely see a significant uplift.

An overview of dilapidations claims

“Put simply, dilapidations represent ‘exit costs’ for a tenant at the end of their lease, which are attributed to putting the property back into the condition required by the lease, through repairs or reinstatement of any alterations. A landlord will present a schedule of dilapidations to the tenant, which can come as an unwelcomed surprise and lead to disputes when the requirements are not properly understood.

The impact of COVID on dilapidations claims

“The rise in home working has had a part to play in the increase of dilapidations claims. Office space may become a novelty rather than a necessity, so many tenants are now looking to downsize or even shut up shop to resolve their financial hardships. Tenants may also be inclined to make more alterations to properties to accommodate new ways of office working, such as installing partition walls or creating larger break out spaces.  

“According to the Centre for Retail Research (CRR), retail store closures are expected to hit 20,620 this year, as the high street continues to suffer. As a result, many retail landlords are looking to completely change the use of their building, such as converting it to smaller, regional co-working space which businesses can rent on a short-term basis. This poses several issues when it comes to making a dilapidations claim, as tenants may have altered the property while using it for its original intention, but the landlord is intending to use it for different means in the future. Therefore, landlords are unlikely to be able to make a substantial claim which would benefit the building’s new usage.

“One of the biggest issues for any dilapidations claim is getting advice at the right time. Many claims come as tenants are under pressure to leave or adapt property space in line with changing government guidelines. As such, the lease terms can come under intense scrutiny and the required state of the property becomes potentially subjective. Investing in a surveyor’s services early in the lease process therefore becomes essential.

Removing subjectivity through surveyor investment

“Surveyors can be appointed before there is a breach of covenant relating to the condition to the property, or even at the very start of a lease. A schedule of condition can be produced by the surveyor, setting out clearly for both landlord and tenants the expected standard of repair. Standards set by a lease can sometimes lack clarity, so involving a surveyor early can assist in removing, or at least reducing, the level of subjectivity. At Rund, our expert surveyors provide a tailored service, offering bespoke advice to ensure both landlords and tenants have a full understanding of property condition requirements.

“Another benefit of investing in a surveyor is that they have experience working on behalf of both tenants and landlords. At Rund, our surveyors provide a complete service for each, throughout the lifecycle of a lease. This could include analysing a tenant’s proposed alterations, ensuring all works are recorded accurately and in line with their contract and relevant legislation. This could also include undertaking an assessment during the lease term to analyse a tenant’s likely lease end liabilities, assisting them in preparing for an exit.  We also have significant experience working closely alongside solicitors to advise landlords and tenants where break clauses have been triggered and negotiating settlements at the end of a lease.

Achieving a smooth recovery through early action

“It is crucial to seek advice from a surveyor at the earliest opportunity when it comes to considering dilapidations claims. COVID has already shown its devastating effects on many businesses and property assets, so now is the time for landlords and tenants to start thinking about their lease terms and whether they’re likely to come into any difficulties down the line. It is key to have complete transparency and clarity from day one, so any level of subjectivity is taken out of the equation.”