Dilapidations at the end of a lease nobody budgeted for

Aug 29
3 min read

Updated: 2 days ago

Introduction

A business moves out at the end of a ten-year lease, hands back the keys, and receives a claim for a substantial sum covering repairs, redecoration and removal of the fit-out they installed on day one.

Nothing has gone wrong. The claim reflects obligations in a lease signed a decade earlier, assessed against a building the tenant agreed to maintain and return in a specified condition. It is a predictable cost that almost nobody provides for, arriving at the moment the business is also paying to move.

1. Dilapidations at the end of a lease flow from what you agreed at the start

The claim is not arbitrary.

Repairing obligations, decorating covenants and reinstatement requirements all determine the figure. Everything about the eventual claim was decided when the lease was signed, which is why the terms matter so much then.

2. Understand the three main heads of claim

What is actually being claimed for.

Disrepair against the repairing covenant, redecoration where the lease requires it, and reinstatement of alterations you made. These are separate obligations and the claim usually covers all three.

3. Know that reinstatement can be the largest item

Frequently overlooked entirely.

If you fitted out the premises, the lease may require you to remove it and return the building to its original state. A fit-out that cost a substantial sum to install can cost a comparable sum to remove.

4. Check whether the landlord actually intends to do the work

A significant limitation in many jurisdictions.

Where a landlord intends to redevelop or refit regardless, the loss they can recover may be limited to the reduction in the property's value rather than the cost of works. This is a genuine defence and tenants frequently do not raise it.

5. Get the schedule of condition out

If you agreed one.

A schedule annexed at the start caps your obligation at the recorded condition. This single document frequently reduces a claim by most of its value, and it is the reason to insist on one when signing.

6. Deal with it before you leave

Cheaper than a claim.

Carrying out the work yourself, using your own contractors, at your own pace, is almost always cheaper than paying a landlord's assessed figure. This requires starting well before the lease ends.

7. Ask for an interim schedule during the term

An option most tenants do not know about.

Requesting the landlord's view of dilapidations a year or two before expiry gives time to plan and budget. It also prevents the situation where the first indication of the figure arrives after you have left.

8. Provide for it in the accounts

Treat it as a known liability.

An accrual built up over the term, rather than a shock in the final year. Accountants can advise on the treatment, and providing for it is what turns a crisis into a planned payment.

9. Negotiate, and take advice

Claims are opening positions.

Initial schedules are typically prepared by the landlord's surveyor and are negotiable, sometimes substantially. A building surveyor acting for the tenant usually recovers their fee several times over.

Photograph the premises when you leave, as thoroughly as you should have when you arrived. The condition on the day of departure is the factual basis of any dispute, and tenants who kept no record are arguing from memory against a professionally prepared schedule.

Conclusion

Recognise that the claim was determined by the lease you signed years earlier.

Understand the three heads of disrepair, decoration and reinstatement, take reinstatement of your fit-out seriously because it is frequently the largest item, check whether the landlord's own plans limit what they can recover, produce any schedule of condition agreed at the start, do the work yourself before leaving where possible, request an interim schedule a year or two before expiry, provide for it in the accounts across the term, negotiate the claim with a surveyor acting for you, and photograph the premises on departure.