When you see the word “dilapidations” you may think about the potentially fractious period at the end of a commercial lease when tenant and landlord negotiate over a settlement for remediation to the recently vacated property. However, this is the last stage in a series of points during a commercial lease at which both landlord and tenant must consider how to comply with their lease covenants and ensure the property is maintained appropriately.
In this series, we look at starting a new lease, during the lease, and planning to exit or renew.
1. Before you sign the Heads of Terms
When a commercial tenant has found their preferred property, the first thing they should do is instruct a full building survey by a qualified building surveyor. This will inform the tenant of the construction, condition, and existing defects that may affect the demised property, and the remedial works required. It should include commentary on risks and liabilities of the property, for example proximity to high voltage powerlines, contamination, or adjacent property uses. The survey should also highlight potentially onerous maintenance requirements, such as high-level access or off-grid drainage systems. These elements can be used by the tenant as a negotiation tool when agreeing lease terms.
2. Get a Schedule of Condition
Once lease Heads of Terms are agreed, I recommend that a tenant instructs a Schedule of Condition, which is appended to the lease. This provides a photographic and written record of the condition of the demised premises at the start of the lease and limits the tenant’s repairing and redecoration liability. It sets the expectations of both parties, as the landlord cannot ask the tenant to return the property in any better condition than set out in the schedule, but also shows the condition expected following any remediation work.
3. Before you make changes to the property
Mid-lease alterations are commonplace; the tenant’s requirements for the property may change and the property may be adapted to suit. Partitions may be erected or dismantled, mezzanine floors added, or kitchens refurbished. Generally, a lease will allow the tenant to undertake some non-structural alterations without prior approval from the landlord (statutory approvals notwithstanding). However, significant work may require approval, which may come in the form of a Licence to Alter. The licence is an agreement by the landlord for the tenant to undertake alterations to the property and is not to be unreasonably withheld. The tenant needs to produce the relevant details (drawings, engineering details, specifications etc.) to inform the landlord of the proposal. The landlord should satisfy themselves that the alterations will not have a detrimental effect on the property, or that they are willing to accept this risk.
Before submitting an application to alter, the tenant should get professional advice on compliance required, for example Building Regulations, Planning, alterations requiring updated Fire Risk Assessments. etc.
The Licence to Alter should be written by a solicitor to ensure compliance with the lease. Depending on the wording of the lease, the tenant may have to pay associated fees for the review of documents and monitoring of work by the landlord’s surveyor. Clauses within the licence may include a requirement to reinstate the property at the end of the lease or that the alterations become the landlords’ at the end of the lease.
Seek professional advice from Vickery Holman. We have a team of surveyors around the South West and can help you make the most of your lease. If things go wrong, we have a Dispute Resolution team.
