How to manage repairs and reduce your dilapidations liability: a practical guide for charities and social enterprises
Your operational premises are likely to be your most valuable and costly asset. You may occupy (for example) offices, hospices, a care home, administrative or training centres. Very often, your organisation will be responsible for all repairs and maintenance of the premises, despite not actually owning it.
If you do not keep up with your repair and maintenance obligations, your organisation will face a financial claim at the end of the lease from the landlord. Rather than being surprised, it is sensible for you to consider the extent of your organisation’s repairing obligations as far in advance as possible.
This article outlines five practical tips to help you plan for and limit your exposure to such a claim from your landlord. For charities and social enterprises where the board members regularly rotate, these steps are particularly important to ensure prudent management for the long-term, avoiding surprises for the future board.
Tip 1 – Plan ahead
In good time before the expiry of your lease, consider the tenant obligations concerning the state and condition in which your lease terms require you to hand the property back to the Landlord. These will include repair, decoration and reinstatement . Are you required to keep your premises in “good repair” or simply “in no worse repair that at term commencement”? What are your statutory compliance duties? These often include fire safety, gas and electrical safety and water hygiene. Any alterations to the premises may need to be removed, such as your accessibility equipment.
Find all documents supplemental to the lease, such as licences to alter and schedules of condition. If your lease is subject to a schedule of condition, it can significantly reduce your dilapidations liability. Tenants often struggle to locate the relevant schedule of condition until years later, materially weakening their negotiating position at lease end.
Tip 2 – Seek early input if you want to do the works
Commission a chartered building surveyor to advise your organisation about what repair and reinstatement works will be required at term end to meet your lease obligations.
Carrying out the works will take time so factor this into your decision-making. Do you have sufficient time before lease expiry to tender for the works, instruct a contractor and for the repairs to be remedied?
An advantage of doing the works yourself is that you will have control over the spend, but on the flipside you may end up doing works that the landlord would not have required or which do not impact on the value of a claim for dilapidations. The alternative is to wait for lease expiry and see if the landlord serves a terminal schedule of dilapidations as explained below.
Tip 3 – Budget for repairs
Ideally, you should regularly be setting aside funds each year for repairs so that the costs are spread out over the term of the lease. At the very least, start financial planning at least one year before expiry. Otherwise, unless you take a new lease of the same premises, your organisation may be hit with a hefty and unaffordable bill at lease expiry.
Tip 4 – Seek specialist advice
A terminal schedule of dilapidations often arrives shortly before (or shortly after) the lease end. Once received, it is prudent to send it onto your specialist solicitor who will work together with a chartered building surveyor. We aim to reduce your financial liability significantly – and regularly succeed in resolving matters for a fraction of the initial claim.
Landlords frequently try to ‘improve’ their assets or “bump up their claims” by the inclusion of items representing improvements and upgrades rather than repairs (such as new carpets and windows and even replacement boilers when the existing items are not yet beyond their useful life). Landlords frequently include items which are not the tenant’s legal responsibility and inflated costs or claims that do not represent their genuine loss.
You should consider obtaining expert valuation advice. You may find that the diminution in the value of the landlord’s reversion is significantly less than the cost of the repair works. In some scenarios, your financial liability could be reduced to zero. Also consider whether you can pass any of the financial liability onto third parties, such as any undertenants at the premises. In these more complex legal areas, a real estate dispute resolution lawyer could prove invaluable for saving your organisation money.
Tip 5 – Find out your landlord’s intentions
What does your landlord want to do with the premises after your lease has ended? If the landlord plans to redevelop the premises into an alternative use, refurbish or grant a new lease to a third party, this could significantly reduce the value of its claim. Look out for any legal notices or planning applications made by the landlord and speak to local agents.
Consider whether to negotiate a settlement with your landlord. Your landlord might be willing to settle your dilapidations liability earlier. A collaborative approach could crystalise your financial liability earlier and avoid your organisation incurring ongoing professional costs. However, it is prudent to obtain legal advice as there is always a risk that you end up over-paying in the process.
Conclusion
For charities and social enterprises, your premises are essential — whether these serve the public, deliver care or provide a safe working environment for staff. Managing lease repair obligations effectively protects your organisation’s financial resources, reputation and ensures operational continuity. It is sensible to consider the issues raised in this article early and involve professionals at the right time, to save your organisation stress and potentially money.
Contact us
Rachel Croft and Stephanie Trompeter are real estate dispute resolution specialists at Hempsons. If you have any questions about anything in this article or would like advice about your property, please get in touch.