Does the phrase “Schedule of Dilapidations” mean anything to you? If you are a commercial tenant, it should strike fear into your heart. Did you know, for instance, that the word “keep” in the phrase “keep in good and tenantable repair” also has the legal meaning of “put”. That means it is no use trying to argue that something that is not in good repair was just the same at the start of the lease.
Perhaps you thought dilapidation meant “falling into decay”, a building with doors hanging off their hinges, broken and overflowing rainwater pipes, tattered curtains blowing out of smashed windows and buddleia ballooning out of water washed masonry. I think we all have an approximate idea of where the threshold of the description “dilapidated” commences. But is this what it means when dilapidation has an “s” on the end of it? Possibly not.
An English import
Where did this all come from? In Scotland leased buildings used to be let on the basis that the landlord had a repairing obligation to keep the building wind and watertight. This followed a commonsense view of property ownership. The owner would look after the building by keeping the rain out. How much real damage could a tenant do? In England a different approach was adopted. The logic of the English approach was: “Let’s remove all the hassle from property ownership so that it becomes more akin to share ownership by putting every cost and liability we can think of onto the tenant”. This was the foundation of the Full Repairing and Insuring (FRI) lease. 25 year FRI leases started to cross the border into Scotland in the 1950s and 60s and by about the late 1970s and 1980s the first of them were coming to an end. From then on an increasing number of claims for Dilapidations started to be served on tenants and today it is an industry all of its own.
The mismatch between what tenants thought they were agreeing to and what, at the end of a lease, was claimed by way of Dilapidations was often extreme but it was in no-one’s interests to consult the men in wigs. So for a time Dilapidations claims got harder and harder. Surveyors specialising in the subject got pickier and pickier.
A lot of this was not tested in the Scottish courts and there is scope for quite a lot of debate about what is or is not required under the terms of any particular lease.
What can be done?
There can be no doubt that a dilapidations liability can be quite frightening from a tenant’s point of view and often “common sense” is not a very useful guide to where it will all end up.
When you have come to the end of a lease or get involved in discussing dilapidations in the context of a lease renewal would it help to know what the facts are? Would it help to be prepared years in advance? Would it help to know what you are in for financially? You bet it would.
Is there anything a tenant can do to avoid or mitigate dilapidations claims? In our opinion there is often a lot that can be done, from an informed reading of the lease to doing carefully planned work on the building that will make it difficult for the landlord to make a claim stick.
And if you are taking a lease that includes a repairing obligation (whether “full” or not) do you know what you are committing to? We have even seen tenants signing up for the tail end of leases and being badly stung.
During the boom Landlords were able to strike very hard bargains at the commencement of a lease and often tenants did not care too much what they signed. Now, as many businesses face hard times they need to look carefully at where costs can be saved and liabilities avoided.
Whatever stage you are at in a lease, we strongly recommend that you don’t proceed further without independent professional advice:
- Always take advice on the repair obligations you are entering into before you sign a lease and don’t take the advice of the broker!
- If you are already committed take advice on what your likely liability is.
- Take advice on what you steps you can take to mitigate or minimise your liability.
At GLM we regularly act for landlords and tenants both of whom have much to gain from being represented by a clued up building surveyor. With the benefit of our expertise, dilapidations need not be feared.
For more information on how GLM can be of help, please contact Ian McKee.