So you own the Company, ok. So you own the premises, ok so far. So the Company leases the building from you. It’s all yours anyway, so you create a standard or possibly soft lease between the two. Does it really matter what the terms are, as it is only you who might have to rely on the terms and hold the benefits of the covenants?
STOP. Stop right now!
I have recently been involved in a Dilapidations case where the owner of a Company was forced to sell the freehold of the demised premises to a third party who became the Company’s Landlord.
Lo and behold at the end of the lease a Dilapidations claim in excess of £300000 was received from the Landlord. The original Lease was soft in favour of the Landlord. The Tenant was exposed to the full cost liabilities of repair redecoration and reinstatement ( excepting for those aspects of the sadly all too often usual overstatement and exaggeration by Landlord’s Surveyor). The Tenant had not sought to limit its liabilities properly and no schedule of condition had been prepared. Why should it? “I am both Landlord and Tenant” thought the one and same Company owner and Premises owner.But they are two separate legal persons.
A salutary and expensive lesson.
WOW (Words of Wisdom)
Always be aware one or both of the parties to a Lease could change. If the Company is the Tenant the Lease should always be scrutinized by competent solicitor and surveyor in order to see how its worst hard nosed enemy (s.o.b)might use its provisions and weaknesses to abstract the maximum of damages by way of compensation at Lease end.
A client approached me towards the end of 2009 with a dilapidations claim from a Landlord for £180000 or thereabouts in respect of an industrial warehouse. There was only a month or so left of the lease. I asked why the Tenant had left it so late to deal with the matter. The Tenant thought because it had heard nothing from the Landlord with couple of months to go, it was going to get away without claim. There had been an Ingoing Tenant’s Schedule of Condition and the lease liabilities were limited to yielding up in no better or worse condition than the state of repair at time of lease.
Other than move out and remove fixtures and fittings the Tenant had done virtually nothing to put its house in order in respect of repairs and decorations.
I was engaged to see what I could do. An analysis of the Lease and Claim revealed there were the usual invalid items and overstated costs; liability for some repair items was relieved by the Schedule ; a lot of the repair and decorations items were however valid. I prepared a schedule of works so the client could attempt to complete the same before lease end including repainting a substantial concrete floor and various other simple works of repair and cleaning.The Tenant was engaged in relative modest expenditure in comparison with the original costed claim items.
After vacation and lease end ,the Landlord’s surveyor revised the Landlord’s claim downwards to £95000. After six months of negotiation and haggling with the Landlord’s Surveyor, the Landlord eventually settled for £40000.
A satisfactory result for the Tenant.
WOW (Words of Wisdom)
Do not assume because your Landlord has not served a Schedule of Dilapidations you will escape liability from Lease covenants for Repairing, Decorating and Reinstatement.
Plan backwards and put your house in order, unless of course you know for certain the premises are to be substantially altered or demolished rendering any such works valueless. ( Law of Supersession).
Oh and if a warehouse concrete floor slab is not painted at the beginning of lease be aware painting it could substantially extend your decorating liabilities at lease end.
Sadly many commercial Tenants are ignorant of what their lease terms mean. If for one moment someone explains clearly the innocuous phrase ‘to keep’ in repair means implicitly to ‘put into repair‘ that deal on cheap lease in a leaky Victorian north-light factory does not seem so good. ‘To keep‘ means to put your hands into your own pockets and spend hard earned cash on putting the premises in repair.Great for the Landlord. Not so great for the Tenant.
Oh and do not think you can fold the Company to escape liability- most leases require the old PG- the personal guarantee from Directors or others.
WOW (Words of Wisdom)
Always take professional advice from a Chartered Building Surveyor before Lease who can work with your Solicitor to ensure you do not unwittingly sign up to an onerous and costly burden. You now know it makes sense.
A Poor State of Affairs
The Rise of Dilapidation Claims
Matthew Williamson says in Weightmans newsletter :
“Over the past couple of years, the number of dilapidation claims served by landlords against tenants has risen dramatically. Dilapidations are the tenant’s cost of reinstating a property back to the condition required by the lease. Claims have increased because the recession has limited the redevelopment of commercial premises; in a stronger market landlords may just demolish premises that were in a state of disrepair, now they are forced to spend money repairing and redecorating and want to claim that money back from their tenant…………..”
Matthew Williamson is an associate in the commercial property team at law firm WeightmansLLP
Full article can be found by clicking below. All rights reserved.
A client rang me recently and his 10 year lease ends July 2010.He admitted he had no idea what his lease required of him in terms of repairs decoration and reinstatement!
Seemples- RTF******L – read the lease and plan backwards. Do not expect the Landlord to trigger you into action with a Schedule of works. Take control , extract head from sand and address your liabilities while you can. It is so easy to get wrapped up in your business that repairs and decorations to the building can seem a gross inconvenience. There is a natural reluctance to budgeting for repairs and decorations to a building you do not own. However neglect to attend to those responsibilities and it could be very costly.
If you cannot work out a strategy to minimise your exposure to claim you know where to come.
WOW (Words of Wisdom)
Ignorance is not bliss when it comes to commercial lease liabilities.
Any Tenant of a commercial premises under the covenants of a typical ordinary lease will be expected to keep the premises in good repair and regularly decorated. You must repair and decorate as the lease specifies.There is usually a restriction on alterations without permission. So if you add or takeaway something you will be liable to reinstate and make good.
Do not file the lease away in the cabinet. Get it out and check what it says, preferably in good time before lease end .
You generally have no rights to hang over at lease end to sort matters out unless of course you want to carry on paying rent! The Landlord may not agree to your hanging over anyway.
I come across from time to time poor and impoverished Schedules of Condition prepared on behalf of ingoing Tenants comprising pretty basic and limited written schedules and photographs.-an attempt to limit the Tenant’s liabilities to a condition no better or worse than recorded at the time of Lease was the probable brief. Gosh these must have been prepared years ago before digital camera technology I hear you say. Often yes , but I have had to try to defend terminal dilapidations claims on basis of schedules prepared as little as 5 years ago meeting this description. It is hard work as it seems the object of dispute is always just outside the field of view of the photograph. Sod’s law. I can interpolate a lot from overall state of repair and decoration shown on a series of photographs but there is nothing better than a comprehensive visual record which leaves no room for arguements between Surveyors often many years down the line. Digital photography technology allows us now to take hundreds of photographs and store them on SD cards or similar cards the size of a postage stamp or DVD disc . ( CDs very rarely these days have enough space to store sufficient high-resolution photos).
Even hundreds of photographs might not be enough. To address this issue we have adopted and use the best of technology to now prepare definitive Schedules of Condition comprising comprehensive written descriptions of defects, cross referenced high resolution photos ( minimum 9MP) and High Definition Video (AVCHD) . A HD video is priceless for recording complex defects and conveying the condition. Run on your common place HD TV on say a 42″ screen the HD video reveals all. I started last year when faced with prospect of recording condition of 4.5 acre industrial site of complex buildings of many varied types. It worked and I provided multiple DVDs ( about 2.5 hours of video )to compliment digital photos and written schedules. No arguements in 10 years time at lease end.Period. Sony or other commonly available Blue-Ray players or even Sony ps3 play the discs beautifully.
I have now adopted the procedure for more modest commissions. Why accept anything less? OK it costs extra in time and effort and cost but the definitive record is priceless to resist overstated dilapidations claims at lease end. My aim is to make it as far as impossible to pursue a legitimate claim for disrepair where limitation as to condition at time of lease is of essence.No system or approach is perfect but my clients will always be assured I shall continue to strive to perfect my method using the best of technology available.
They may not know it for 5 or 10 years but they will reap the benefit .
WOW (Words of wisdom)
Limit your liabilities by definitive ingoing Tenant’s schedule of condition.
HD video is an invaluable part of such schedule.
You know where to come.
A Tenant client of mine rang Jones & Co from his newly acquired position standing on a window ledge facing the prospect of a self- propelled precipice drop.
‘I have received a Terminal Schedule of Dilapidations claim for £100500! We have only occupied the premises for 5 years and now this bombshell…what can we do?’
I duly took instruction calmed him down and helped the distraught Tenant step back from the window ledge .
I conducted a review of the Claim which included an inspection of the premises and detailed examination of the Lease. The Tenant was indeed bound by fairly standard lease with liabilities to keep the premises in repair, redecorate in the last three months of the lease and not to have made any alterations without consent.
The Tenant had unfortunately not been advised before Lease to have a Surveyor prepare an Ingoing Tenant’s Schedule of Condition . This would have served two purposes : to ascertain condition and for attachment to Lease to limit liabilities to keeping the premises in no better or worse condition. The operative words in the repairing clause ‘to keep’ meant that where the premises were already in disrepair the tenant would assume liability to put into repair. A common and often very expensive mistake.
‘Not fair’ I hear the cry so many times. Well you are a big boy or girl and you are entering into a legal commercial contract so why did you not take the best legal and surveying advice at the outset?
This Tenant fortunately contacted Jones and Co with a couple of months left in the lease and there was just enough time for action. The review of the claim revealed a fair number of item requirements for repair were indeed potential legitimate claims. I was however in disagreement with a significant number of items which I considered either outside the scope of the lease requirements and were not the Tenant’s liability or were simply overstated. eg Replace rooflights £10000when a clean and reseal would suffice. Replace colour coated metal barge boards £5000 when a repaint only was necessary. You get the picture.
I prepared a formal Review of the Claim and identified legitimate liabilities and matters to address. Doubtful items were identified and I suggested these items were worth arguing. I recommended a strategy and response. Acting on the advice the Tenant determined to effect works of repair and decoration and reinstatement to mitigate his own exposure to the potential dilapidations claim.I prepared a Schedule of works I considered he should address . He took control of costs and with professional advice carried out works of repair and redecoration which were considered reasonably required by the Lease and not all those required by the Landlord’s Surveyor. Upon vacation of the premises I prepared a full Photographic Schedule of Condition recording the condition. Always do this as it can save arguements later as it indeed did.
The premises looked pretty smart at lease end and all credit to the outgoing Tenant a good job had been done and fair amount of money spent but nothing like the amount of the potential claim! There was nothing prejudicial about the vacated condition which might be offputting to a potential new Tenant- which is of course dear to any Landlord’s heart and wallet.
Congratulations all round you would think? Effusive thanks from Landlord? No. A revised Claim for £25400 only.
‘Hell fire or f*** me ‘ as actually uttered by the ex- Tenant! Understanadble.
My client duly contacted me and requested I negotiate settlement which I duly did. The majority of the items still claimed were challenged and argued against.The claim was reduced to £20500 but they would ‘settle for £10000 ‘( getting desperate). I considered £1750 plus VAT equivalent was fair and reasonable ( being majority Landlord’s Surveyors fees for the merry dance we all had enjoyed)
Well suffice it to say the matter was finally settled at around £2400. Result!
WOW (Words of Wisdom)
1. Always take best experienced and informed professional legal and surveyor’s advice before lease
2. Always commission an ingoing tenant’s Schedule of Condition (and do not forget all engineering services.)
3. Always negotiate repair and decorations liabilities. Spell out just exactly what you are prepared to take on and expressly exclude all matters you are not.
4.Keep your house in order and do what you have contracted to do in respect of repair and redecoration.
5.Take control of costs and plan backwards from lease end date and allow sufficient time to put the house in order. Take advice from your Surveyor as to strategy .
6.Always seek advice when you receive a Repairs Notice or Schedule of Dilapidations. The Landlord’s Surveyor’s requirements may not properly reflect the actual liabilities.