When it comes to dilapidations, there are 5 things we think you should know:
- What are they?
- Who is responsible for them?
- Where does this apply to my business?
- When do I need to think about them?
- Why must I consider them?
Dilapidations within a commercial premises refer to the state of repair (noting any damages) or structural modifications made to an office, warehouse or retail outlet throughout the duration of a lease. Most often talked about at the end of a lease, dilapidations are considered ‘exit costs’ for a commercial tenant.
Similarly to renting a private home, when most commercial tenancies come to an end the owner of the building (the landlord – or an agent acting on behalf of the landlord) will carry out an inspection and/or ‘state of repair report.’ This inspection (or report) is then reviewed and compared to the inspection that would have been carried out at the beginning of the lease and any identified damages or changes to the buildings structure are referred to as ‘dilapidations.’ The dilapidations will need to be repaired before the lease comes to an end and the premises is vacated – this includes re-decorating too.
This process is typically stipulated within the contractual lease between both parties (landlord and tenant) and the agreement is usually that the property is to be “put back” to its original state when the lease began (photographs are sometimes taken to refer back to in order to remind both landlord and tenant of the original condition, helping to highlight any damages or changes to the structure of the building throughout the lease).
When we think of private home rentals ‘dilapidations’ might include painting a bedroom wall or fixing a wobbly door handle; within a commercial property it is the same sort of thing, but on a much larger scale. Businesses utilise their workspace in a way that works best for their team in order to increase efficiency, productivity and ultimately their return on investment. And so to achieve this, they will want (and need) a business premises they can adapt to suit them. This might include additional meeting rooms or offices so partitioning might be installed. Or businesses might need additional space to separate office workers from warehouse workers, or perhaps they’re running out of storage space – in both cases a mezzanine floor installation could be the answer.
Damages asides, whatever modifications a business makes to their commercial premises (mezzanines, partitions, ceilings, flooring etc), they will be required to return the property to its original state before their lease concludes and they move onto pastures new.
So why do you need to know about this? Now that’s a very good question!
When businesses relocate their premises, all too often dilapidations are forgotten about and we can see why… planning a new workspace is exciting and something the whole team can get involved in, and so it’s incredibly common for the upheaval, cost, paperwork and contractors (the list goes on!) of dilapidations to get forgotten about, not just when it comes to vacating their existing building, but how it will affect their new premises when they vacate in however many years to come too. There’s a lot to consider and it’s certainly no mean feat!
Planning ahead and correcting any dilapidations as they arise (if possible) will only help business owners in the long run – why would you want to wait until your lease ends to have a big fee or claim from your landlord waiting for you?
Psst – while not all dilapidations are treated as tax deductible, many are, and provisions should be made for those dilapidations during the term of the lease to help reduce tax bills!
So you now know the dilapidation meaning and why they need to be considered, but as a business owner this is one more thing to add to your ever growing to-do list and it may be starting to feel like a bit of a headache… are we right? Well, Cubex Contracts has some good news – dilapidations are typically monitored and broken down using a ‘‘Schedule of Dilapidations.’’ There are three types of schedules that business owners need to be aware of and whilst each type is geared towards fulfilling the tenants’ obligations to bring the workspace back up to scratch, the difference between the schedules is when they are used throughout the commercial lease.
- Interim schedule of dilapidations (issued during the course of the lease):
This is an opportunity for the landlord to remind the tenant of their obligations during the lease. This helps prevent potential neglect or unfair treatment to the building whilst maintaining the value of the property and stopping the tenant from having to fork out for a big repair job in months to come.
- Terminal schedule of dilapidations (issued during the last 3 years to 18 months of the lease):
This schedule is usually more detailed than an interim schedule of dilapidations (above) and will include a list of items requiring repair before the end of the lease. For example the schedule may stipulate the removal of the glass partition walls you had installed to provide your workforce with additional meeting rooms… they weren’t there at the start of your tenancy, so they shouldn’t be there at the end!
- Final schedule of dilapidations (issued after expiry of the lease):
In the event that repairs or replacements haven’t been carried out or the building has not been returned to its original state as previously agreed within the lease, the final schedule of dilapidations will detail what works are needed, as above, but because the lease would have concluded by this point there may be additional costs to the tenant to cover loss of rent.
Remember, dilapidations don’t just refer to damages to a building, they also include reinstating any aesthetic alterations made to the property throughout the duration of your tenancy.
A Schedule of Dilapidations provides a much-needed foolproof plan for landlords, helping to protect their investments. For tenants, a schedule of dilapidations helps to plan for end of lease repairs and avoid nasty surprises like a huge construction bill once you have vacated – it works for both parties!
And if your next question is ‘‘but how can Cubex Contracts help me with this,’’ then we are thrilled to tell you that our services cover dilapidation repairs and de-construction of previously installed mezzanines and more! And our project management service means we can take the stress out of your hands and handle it all for you… there’s no need to lose sleep over dilapidations!
Whatever your commercial workspace needs, we can deliver the solution. We do everything from constructing new ceilings and flooring to partitioning and mezzanines – and de-constructing it all too! We really do provide an end-to-end solution. And, not to brag, but we have even been known to make the occasional suggestion for office plants too!
For any questions on the 5 Ws of dilapidations, contact Cubex Contracts today!