Repairing Obligations, Not Blank Cheques: Managing Dilapidations at Lease End

When a commercial tenant hands back the keys, the relationship does not necessarily end. A few weeks or months later, a schedule of dilapidations may arrive setting out alleged breaches of repairing, decorating or reinstatement obligations, together with a demand for payment. For many businesses, the figure can feel arbitrary and considerably larger than expected. The good news is that a dilapidations claim is not a fixed penalty. It is a contractual claim, and like any contractual claim it depends on what the lease actually says, what the property was like at the start, and what loss the landlord can properly demonstrate.

What dilapidations actually are

Dilapidations are failures to comply with lease obligations concerning the physical state of the premises. They commonly arise from repairing covenants, obligations to decorate, requirements to reinstate alterations, and duties to return the property in a stipulated condition. The lease is the starting point, not the landlord’s schedule. A tenant is not obliged to hand back a better building than the lease requires, nor to remedy defects that fall outside the covenant.

Two documents often shape the argument. The first is the schedule of condition, if one was annexed to the lease. It records the state of the property at the start and can substantially limit what the tenant must put right at the end. The second is the schedule of dilapidations itself, which the landlord or its surveyor prepares. It should identify each alleged breach, the remedy and a cost. A schedule that simply asserts a global figure without itemisation is difficult to assess and should be challenged.

Terminal and interim claims

Most tenants encounter a terminal claim, made at or after the end of the lease. An interim claim can arise during the term where the lease permits the landlord to require works before expiry. Interim claims are less common but can be used strategically, particularly where a landlord wishes to force action on urgent repairs. The distinction matters because the tenant’s response, the available defences and the timing of any negotiation may differ.

Where disputes usually arise

Disagreements tend to cluster around a small number of themes.

Fair wear and tear. Where the lease contains a fair wear and tear exception, the tenant is not responsible for deterioration caused by ordinary use. The landlord cannot use dilapidations to achieve a general upgrade. A carpet worn through in a reception area after ten years of normal traffic is a different proposition from a carpet damaged by neglect.

Improvements and betterment. If the landlord intends to replace an old roof covering with a superior specification, the tenant should not fund the improvement element. The measure is generally the cost of putting the property into the condition required by the lease, not the cost of a more valuable asset. Where the lease has only a short period left to run, the landlord may also face arguments about diminution in value rather than the full cost of works.

Alterations and reinstatement. A tenant that installed partitioning, cabling or air conditioning may be required to remove it, but only if the lease says so or the landlord validly required reinstatement at the time. A landlord cannot insist on removal merely because it now prefers a different layout.

Absence of a schedule of condition. Without an initial record, the tenant may be exposed to arguments that the property was in good condition at the start. Photographs, maintenance records and correspondence can still help, but prevention is easier than reconstruction.

A common example illustrates the point. A tenant leaves a warehouse with damaged floor markings and a worn loading door. The landlord’s schedule claims a full floor resurfacing and a new door. The tenant’s surveyor accepts patching of the markings and repair of the door but disputes replacement. The negotiation then turns on evidence and the wording of the repairing covenant, not on the landlord’s initial figure.

A practical pre-exit checklist

Read the lease before the final year. Identify the repairing, decorating and reinstatement covenants, any schedule of condition, and the notice provisions. Diary the key dates.

Commission a condition survey early. A tenant’s surveyor can identify likely liabilities while there is still time to obtain quotations and carry out works economically. Leaving it until the final month reduces options.

Check the schedule of condition. Compare the original record with the current state. Photograph the property thoroughly, including areas that are in good condition as well as those that are not.

Separate repair from improvement. Ask the landlord’s surveyor to explain any item that appears to be an upgrade. Request a breakdown between repair, replacement and betterment.

Consider doing the works. Sometimes carrying out the works is cheaper than paying the landlord’s cost of doing them, particularly where the tenant has established contractors. But compare like with like and ensure the works meet the lease standard.

Engage at the right level. A measured response from the tenant’s surveyor, sent promptly, often narrows the issues before positions harden. Silence tends to be treated as acceptance.

Settlement options

Not every claim should be fought to a conclusion. A negotiated cash settlement can provide certainty and avoid the cost of litigation. A diminution valuation, which assesses the effect of the breaches on the value of the landlord’s reversion, may produce a lower figure than the cost of works, especially where the lease has little time left to run. In England and Wales, the Dilapidations Protocol encourages early exchange of information and a considered response; failure to follow it can have costs consequences. A tenant may also offer to carry out part of the works, or agree a staged payment, depending on the landlord’s plans for the property.

The essential discipline is to treat the landlord’s schedule as a claim to be tested, not an invoice to be paid. A tenant that understands its covenants, documents the property’s condition and responds with evidence is in a far stronger position to control the final bill.