Dealing with dilapidation: what business owners need to know
Finding themselves faced with an unexpected and unwanted dilapidation claim is the last thing any business owner wants. However, it’s a situation many leave themselves open to.
Dilapidation is often because businesses need to act quickly when moving into new premises. It could be that they are growing and need to move rapidly into larger space to accommodate more staff. Perhaps they have found new premises that suit their needs perfectly – and want to take the property off the market before another tenant beats them to it.
This pressure to move quickly can lead to a schedule of condition for the property being completed inadequately – or perhaps not at all. It is in these cases that businesses owners can put themselves at risk.
What businesses need to know about a schedule of condition
A schedule of condition is an agreed record of the condition of a property at the beginning of any tenancy. It is a vital document, because it represents a baseline from which future deterioration of a property will be measured. Without having a schedule of condition agreed, it is very difficult for a business to contest dilapidation claims brought by a landlord. This is because they have no agreed record against which claims can be disputed. There is no way for a business owner to prove that property damage included in a claim was present at the start of the tenancy.
For this reason, it is essential a schedule of condition is agreed before any contracts are signed, with the document appended to the lease. A copy should be provided to the tenant and landlord and clearly dated as a true record of condition at that time – ideally the schedule should be prepared as close to occupation as possible. This creates a factual and unequivocal record which is difficult to dispute.
For peace of mind, a business should ensure a comprehensive schedule of condition is carried out by a qualified building surveyor.
It pays to be prepared
Recent innovations in the way a schedule of condition is compiled allow for comprehensive records to be taken very quickly. Smart 360-degree technology now means that a reliable record of the whole premises can be created in a matter of hours.
By producing imagery without any gaps, this technology ensures no areas of the property are missed. Small corners of damp, which could later evolve into more serious and noticeable areas of concern, can be identified at an early stage. Further to this, items in the photo record can be tagged by a qualified building surveyor to accurately record their condition. This high level of detail gives businesses the comprehensive information needed to dispute any contentious dilapidation claims they may face.
The schedule of condition can become a vital document, which can be quantifiable in defending a substantial dilapidations claim. It can potentially save an outgoing tenant thousands of pounds.
The vacation of a medium sized packaging and warehousing premises on the outskirts of Manchester serves as a demonstrable example of this. The initial dilapidations claim from the landlord’s surveyor came to over £150,000. Using records of the original condition of the premises, provided by the preoccupation schedule of condition, the claim was subsequently reduced to under £20,000. Appointing a chartered building surveyor to provide a professional schedule of condition prior to taking the lease saved the tenant over £130,000 in claims and mitigated the need for protracted negotiations and consequential fees. This is not unusual – there are many cases of substantial claims being successfully challenged using a good quality schedule of condition.
As with the above example, more often than not, particularly where there are long leases involved, the surveyors who deal with the dilapidations will not be the surveyors involved at the commencement of the lease. They have to base their opinion and negotiations on available information and what they can actually see in the premises. They can give a professional opinion on when they think damage occurred, but without documentary evidence to identify the original condition it becomes more difficult to refute a tenant’s responsibility for defects.
Applicable for new and old
Even with recently constructed premises, there is no guarantee that a new tenant will not be held responsible for defects which were present, and possibly unseen, at the time of occupation. A chartered building surveyor has the skill and knowledge of what to look for and where to look when preparing a schedule of condition, which can assist in defending future dilapidation claims. Assumptions that premises are in a fit and good state should never be made.
It is even more vital to ensure that there is a schedule of condition in place before taking on premises that have been previously occupied. Some damage can be obvious, but other defects are less evident and could still be picked up by the landlords’ surveyor at a later date. There could also be examples of deterioration from wear and tear, or where lifespan of materials has been substantially reduced, which can also be identified in the schedule of condition.
Planning for vacation
A further option for businesses looking for greater certainty about the cost of future claims is to prepare a dilapidation pre-assessment. Produced well in advance of a tenancy ending, these assessments can help business owners identify and budget for required repairs. This removes the threat of unexpectedly costly claims arising at the end of a tenancy. It also provides businesses with the option of addressing repair work earlier, so they can benefit from the work for the duration of their tenancy.
For a number of reasons, paying attention to the condition of their premises is crucial for a business. Agreeing a schedule of condition is a key component of this – and one that can help avoid significant issues arising later in the tenancy. Reducing risk here can give business owners peace of mind, allowing them to concentrate on the areas of their business they are passionate about.
David Barker, associate director, at leading building consultancy and architecture practice AHR
