As a tenant, it is essential that you have a robust strategy and a clear plan of action if you are to avoid unnecessary and potentially very significant costs at the end of a lease.
So how do I manage our exit strategy?
The lease will place various repairing and reinstatement obligations upon the tenant, and may require strict performance of these obligations in order to operate a break clause. Missing a notice period or not performing any of the obligations adequately may result in the lease continuing after the break date. You may not consider the breach significant, but the legal interpretation may be less forgiving and the cost implications can be significant.
Assuming that the lease will terminate, the exit strategy needs to be carefully considered in advance. From a practical perspective, when should the occupiers move out to allow dilapidations work to be undertaken? If occupation has to continue until the termination date, what level of claim will the landlord raise? The answers lie in a combination of statutes and case law, so it will take an experienced dilapidations surveyor to steer you through the possible scenarios and get the best results.
The first task is to undertake a review of the lease and assess both the practical and financial implications. This should be done well before the termination date, preferably at least a year in advance. By understanding the requirements, a realistic budget can be prepared and monies set aside.
Identifying the best options for discharging your dilapidations liability may include undertaking some or all of the works. The matter may be complicated by sub-lettings, whereby access is not possible until the termination date and claims need to be raised against sub-tenants. Understanding these circumstances and developing a clear strategy for dealing with them is essential.
If a financial settlement is identified as the most appropriate solution, negotiating the best deal will be achieved by understanding the precise extent of the tenant’s liability and the landlord’s intentions for the building. We have saved tenants as much as 88% of the sums claimed by carefully analysing the lease terms or determining that the building is to be substantially improved or redeveloped as part of the landlord’s on-going strategy.
Understanding the extent of dilapidations liabilities is not just for the lease end. In the event that a leasehold property is being acquired but is not in perfect condition, it may be appropriate to agree a schedule of condition or to negotiate a contribution from the Landlord to offset against accrued obligations. In a recent case we negotiated a sum equivalent to £30/sqft for accrued dilapidations, which our client put towards the refurbishment and future-proofing of the premises. It is also worth noting that FRS102 requires businesses to make a suitable allowance within their accounts for dilapidations.
At BWP, we believe that we can provide the best service by ensuring that all dilapidations claims are assessed and negotiated by our experienced team members. If the strategy is to undertake remedial works, our project management and cost consultancy colleagues are well equipped to manage fast track contracts to provide a cost effective and timely solution.
By paying attention to the detail, we provide clients with realistic, accurate, commercial advice, to ensure that they achieve the most cost efficient outcom