As tenancies draw to an end, it is rare that a property will be in the same physical state that it was in before the tenant moved in. In such situations, the landlord will usually be entitled to ask the tenant to reinstate the property before it is handed back. This article sets out what landlords should bear in mind when dealing with dilapidations in commercial premises.
Establish the tenant’s obligations
Long before the expiry of the tenancy, the landlord should review the lease. He will need to specifically consider the terms relating to the tenant’s obligations concerning:
- Reinstatement; and
- Yielding up.
The lease will (or least should) set out precisely what the tenant is supposed to do regarding the state of the property before he hands it back to the landlord.
The landlord should be able to establish at this stage the extent of the tenant’s obligations.
It is worth the landlord (or his surveyor) preparing a schedule of condition before the tenant moves in. If he has, it will make the process at the end of the tenancy much more straightforward.
The landlord (or surveyor) will need to view the premises prior to the end of the tenancy and establish what the position is in respect of dilapidations. Of course, whether the landlord has a right to enter the premises will depend on the terms of the lease.
Landlords rarely like to have commercial premises sat empty and the quicker you can resolve any dilapidations issues, the quicker the landlord can re-let. Therefore, if the landlord wishes to swiftly re-let, he will need to consider the dilapidations position well in advance of the end of the tenancy.
The landlord may wish to consider the following:
It is often wise to employ a surveyor to prepare and serve a schedule of dilapidations. This is particularly so with large or expensive premises.
There are certain statutory obligations regarding the valuation of the property and the cost of rectifying the dilapidations. An expert surveyor and/or solicitor will be able to assist with this.
When choosing an expert valuer or surveyor, the landlord should consider whether that expert would be appropriate if the dispute were to eventually proceed to a trial. At trial, the expert will be required to give evidence. It is therefore important that they can stand up in a court room and justify the contents of a report.
If the Landlord and Tenant Act 1954 applies, the landlord should take steps to find out whether the tenant wishes to take on a new lease of the premises. If you are not sure whether this applies to you or what it means, seek legal advice.
The landlord may wish to consider carrying out some repairs itself. There are various advantages and disadvantages of this. Even if the landlord carries out the work himself, the lease is likely to allow him to recover the costs from the tenant. It may be that doing this gets the work done quicker.
The vast majority of commercial leases include a provision that the tenant is to pay the landlord’s legal costs and surveyor’s costs in dealing with dilapidations at the end of the tenancy. This can often be a persuasive argument to ensure that the tenant resolves the matter swiftly. The longer the matter proceeds, the higher the landlord’s costs (and tenant’s liability) are likely to be.
Ultimately, the terms of the lease are key. If, as a landlord, you are unsure as to your position regarding how to approach a dilapidations matter, it is sensible wise to seek legal advice at an early stage. This can often head matters off at the pass.
Minimum Energy Efficiency Standards
In addition to worrying about dilapidations, from 1 April 2018, landlords will need to ensure that their properties reach the Minimum Energy Efficiency Standard (MEES). This means that its Energy Performance Certificate (EPC) must show a rating of E or higher. This will apply to any property that is to be re-let, or where the tenancy is to be renewed. All commercial tenancies are not caught by this requirement until April 2023. Landlords who do not meet these standards may receive large fines. It is therefore advisable to deal with this matter sooner rather than later.