Whether you are an occupier or an investor, our strong advice is to act early in order to ensure the dilapidations and exit strategy can be approached methodically and that all options are available for consideration.
Investor’s Exit Strategy Advice
As an investor, you are likely to be considering a potential future tenant’s requirements and may use the opportunity of vacant possession to undertake substantial refurbishment works. Conversely, if the market or your intentions are such that a short term letting may be preferable, then it is more likely that refurbishment works will be undertaken to reflect the dilapidation liability of the outgoing tenant as closely as possible, thereby reducing capital expenditure. This is likely to be the case in circumstances where multi-occupied buildings have different lease terminations, and the landlord will be looking for co-terminus lease ends before vacant possession enables the landlord to carry out substantial refurbishment. Weighing up these options will also play heavily on an occupier’s tactical decisions when trying to second guess the landlord’s intentions.
We recommend consideration is given to the following;
- Ensure all legal documentation is available. Lease plans should be in colour.
- If the tenant has a Schedule of Condition this should be available in original format with coloured photographs.
- Seek advice from a dilapidations specialist before approaching the tenant
- Prepare a Terminal Schedule of Dilapidations and serve it on the tenant. For more details on how to prepare a Terminal Schedule, please visit our article ‘Preparing a Terminal Dilapidations Claim’.
- Following termination of the lease take photographic evidence of the state the property has been left in
- Locate the Health & Safety and Operating and Maintenance Manuals and establish if they are up to date. What about the Asbestos Register, statutory test certificates for gas, electric and lifts etc? Obtain these from the tenant as necessary
- Carry out full testing of the mechanical and electrical services gathering proof and evidence of their state of repair. This may involve full validation testing.
- Gather evidence and serve a quantified demand. This will include the terminal schedule of dilapidations, a statement of intention, and supporting evidence of financial loss such as a tendered specification or diminution in value / Section 18 calculation.
Tenant’s Exit Strategy Advice
Again we must reiterate the importance of approaching dilapidations and exit strategies as early as possible. Exit strategy options may involve:
- Lease surrender
- Relocation to a new property
- Lease re-gear
- Stay in occupation, restack space & release remainder
- Operate break clause
In all cases, an occupier will require assistance in understanding the repair, decoration and reinstatement liabilities as part of the negotiations with the investor. Consider instructing the preparation of a dilapidations assessment.
As a tenant looking to vacate the premises, the tactics and strategy are imperative in order to mitigate a dilapidations claim as far as possible, for instance, undertaking the dilapidation works may be a consideration if the tenant is in a position to vacate the premises early. In these circumstances, a landlord may well accept a reduced financial settlement as they invariably prefer cash as opposed to the works being undertaken.
Occupiers / tenants leading up to the end of their lease are also recommended to give consideration to the following:
- Ensure all legal documentation is available. Lease plans should be in colour.
- If you have a Schedule of Condition this should be available in original format with coloured photographs.
- Do not contact the landlord until you have sought professional advice.
- Consider undertaking the dilapidation works either in full or in part. At the very least obtaining quotes for repair works from contractors under competitive tender is a useful negotiating tool. However it only has bite if you are able to undertake them by vacating early.
- Ensure all routine maintenance is up to date.
- Consider undertaking obvious repairs to defects which create a poor impression.
- Test and provide evidence of all mechanical and electrical services providing proof they are in working condition at lease end.
- If the Health & Safety and Operating and Maintenance Manuals are up to date, what about the Asbestos Register, statutory test certificates for gas, electric and lifts etc?
- You are likely to be required to give up the premises with vacant possession. How onerous is this?
- Are you operating a break clause? These are either material, compliant or not. Which one is yours?
- Take photographs immediately before lease end in order to demonstrate the state the property has been vacated in.
- Obtain proof that keys have been handed back to an authorised representative working on behalf of the landlord.
For further information please contact Alex Charlesworth FRICS;
| Alex Charlesworth FRICS Partner Head of London Building Consultancy Cushman & Wakefield LLP 43-45 Portman Square London W1A 3BG Tel: +44 (0) 20 7152 5338 Please contact our Dilapidations Team with any inquiries you may have |