I have come across an interesting article by an accountancy firm about the tax aspects of making suitable provisions for dilapidations liabilities and offsetting against taxable profits. Read it and see your accountant about how this may be of advantage. Dilapidations and Taxation
It is usual in most Full Repairing and Insuring FRI lease provisions for Landlord to insure the building and charge back the premium to the Tenant. The Tenant is obliged not to do anything by action or inaction that might void the insurance policy.
How many Landlords actually send a copy of the policy to the Tenant and draw attention in writing to the insurance company’s specific requirements and contractual terms with which the Tenant should comply; have you?
Recently ,whitest reviewing a lease during the term with regard to interim inspection and preparation or schedule of dilapidations, this matter came up. I reminded the Landlord of the above, which he had not done.
Lo and behold he discovered his insurance policy expressly required annual inspection ( and record of such inspection by roofing contractor) of all flat roofs. Further such record had to submitted annually to the insurers.
The Tenant could not reasonably have been required to comply if he had no constructive knowledge of such requirement by the insurer.
Many insurers are now including express provisions on buildings and engineering services maintenance. Why should they underwrite neglect to good housekeeping?
Always check the policy wording. Remember the loss adjustor in the event of claim works for the insurance company and not you.
<WoW (Words of Wisdom)
Send copy of lease to your Tenant, draw attention to specific conditions of such policy and require Tenant to provide evidence of compliance periodically, otherwise run risk of the policy being void by breach of insurance contract condition. Instruct periodic inspections by your Building Surveyor.
Dear Andy, just a short note of gratitude for your incredibly helpful advice regarding building dilapidations. It is a privilege to deal with someone who is at the top of their game and also retains the traditional values of being a decent and honest chap Thanks again.
Deputy Managing Director, DJ Murphy (Publishers) Ltd
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.