The Court of Appeal has held that a tenant’s covenant to pay “all costs and expenses which might be incurred” entitled the landlord in a dilapidations claim to have his costs assessed on an indemnity basis.
So in the euphoria of taking brand new premises a standard FRI lease is signed. The building is pristine and seemingly has little maintenance and decorative liabilities. Wrong! Do not forget with the passage of time and weathering and possibly aggressive inland coastal environment, protected metal coatings and factory applied finishes to cladding and steelwork will deteriorate. The decorations covenant will also likely require periodic redecoration and redecoration in the last 3,6,12 months of the lease.
Always seek advice from an experienced Chartered Building Surveyor FRICS or Chartered Building Engineer FCABE who can advise as to not only present condition, but also future liabilities as building and component materials weather and degrade.
WOW Words of Wisdom
DO NOT sign a standard FRI lease without understanding the implications for costly repair and decorations liabilities and costs as the lease term diminishes and the building asset deteriorates. Expert advice is priceless and will save you ££££
Not a cheap building to repaint, so a 10 year minimum life high performance paint system is essential to save the horrendous repeat costs of access and protection!
Useful reminder of how the value of actual loss in a dilapidations claim is established by the courts.
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
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.