Office lease rental contracts are normally signed on a full repairing or internal repairing basis, typically over three to ten years in duration. When signing these office lease contracts, often little thought is put into what happens at the end of the office lease term with regards to “dilapidations or making good” the building to the original state it was in.
Thousands of companies every year do get caught out with the schedule of dilapidations that are normally prepared by a surveyor at the end of the lease term. To make matters worse, many office lease agreements will state that you – the tenant – will even have to pay for the survey in the first place!
We have seen first-hand dilapidations schedules. We were even to be charged for servicing the fire system when there was not a fire system installed in the building. These costs, can in a worst case scenario put a company out of business.
When signing an office lease, make sure you read the small print. Is the lease a full repairing or internal repairing lease? A full repairing lease may mean that you have to pay for repairs to the drains, roof or even structural damage to the building. Is this fair if you are signing a three year lease when the building will exist for 50 years? You may end up paying for repairs to the roof that will only assist the next tenant. An insurance policy will cover for certain claims, but not for normal wear and tear.
We have seen a situation where a company signed a lease on a grade two listed building, only to be hit with a repair bill into the hundreds of thousands of pounds for structural damage. This cost would have been in excess of all their office rental charges over the duration of their lease.
Internal repairing leases are fair. If you make alterations or damage your working environment, then it is reasonable that you have to make good. At least, these costs are significantly less than replacing the drains or a roof.
One answer if you are being told you have to sign a full repairing lease, is to have a cap on the amount you will pay if there is a claim. At least then you can budget for any unforeseen costs.
Having a solicitor to read over the lease agreement is a must. Even for buildings with a modest rental charge, it still makes sense to have a surveyor look over the building. This might cost between £350.00 and £2,000.00, money well spent compared to the potential loss.
When you are nearing the end of your office lease, firstly make sure you know what notice you have to serve on the landlord. Failing to terminate on time might mean you are tied in for a further period, especially if there is a break clause in the agreement.
You need to allow time to complete any dilapidations prior to moving out. Some office lease agreements will grant you a week or two after the lease end to sort out any problems. Regardless, the landlord or their surveyor will inspect the premises to make sure all the work has been carried out to their satisfaction.
With a building we owned that we rented out, we agreed a dilapidations figure with the tenant and we just invoiced them for this amount, and we did the work. This made sense to us as the landlord, we used our own office fit out / building company and were in control of the schedule of works, timescale and cost.
It is a regular for disputes when negotiating the extent of works and cost for the property, to return to its original condition. Unfortunately some landlords can be unwilling and very unreasonable. The courts in the UK are used to disputes over dilapidation charges.
Most dilapidations are settled by negotiation, but other methods exist in demonstrating loss suffered by a landlord such as a diminution valuation.
Office dilapidation charges can include:
- Asbestos removal
- Plant removal
- Full scale main structure demolitions
- Lift shaft removal
- Safe removal
- Soft strip out furnishings
- Furniture removal
- Repainting
- Carpeting
- Changing lighting
- Removal of partitioning
- Removal of Cat 5 cabling, signage
- Replacement of WC and kitchen facilities
- Electrical wiring and fire detection certification
- And the list goes on…
You need to check and ensure what constitutes “internal” items. Does this include doors and windows, security shutters? A previous dilapidations bill we encountered, required our company to replace window frames, probably the most expensive item on the list.
And then there is the question of how to fund the dilapidations? More often than not, a company will have not budgeted for this figure or not allocated enough money to make good the building.
We can help you reach a successful outcome by providing fixed cost loans that can help pay for dilapidations.
WestWon have a wealth of experience in moving office, the directors having been in business for over twenty five years. In addition to that, we have financed hundreds of office moves over our time. Please call us now should you be looking to finance dilapidations or an office relocation.
