Further Guidance Topics

The property market is an integral part of the field of dilapidations and influences our thinking on many aspects of the subject. To illustrate the dynamic nature of dilapidations, this paper examines some recent trends in the market.

During the first half of 2002, market conditions dictated an oversupply of office space in some areas and a lack of demand in others. The result was that higher incentives and more flexible leases were being granted by landlords, which affected rental and capital values.

The days are gone where the typical commercial tenant will sign a 25-year full repairing lease. Tenants now want shorter leases on more flexible terms, which include the provision of break options. In difficult times, landlords will try to satisfy as many of these requirements as possible, while keeping a lookout on any long term effect on their investment.

The state of the market influences, in particular, the end of term liability of the tenant, and as such, tenants are looking to plan their exit strategy before the end of their lease. Tenants may use the market to their advantage by negotiating early surrender and cutting a new deal with either the existing landlord or another on more favourable terms.

Tenants are beginning to plan as far ahead as two years before the end of their lease, and the advice of dilapidation practitioners is being sought earlier than before, to report on the strategic options available. These report not only the costs of any potential dilapidations liability, but also on the potential effect of market influences at the time.