Dealing With Commercial Dilapidation Costs At The End Of A Lease

All commercial leases typically include a section on “commercial dilapidation costs,” which refers to items or states of disrepair in a commercial property that are subject to very specific repair covenants or promises. Dilapidations refer to things like unfinished repair work, redecorating, or reinstatements that the tenant hasn’t done, typically towards the end of their lease, and which collectively constitute a breach of the commercial lease’s terms.

Often, a tenant’s failure to comply with the dilapidation costs stated in their lease can mean that the landlord is entitled to claim damages from the tenant as a result, usually in the form of dilapidations.

What Are Dilapidation Costs?

Dilapidation is a term used to refer to the condition of a commercial property during the tenancy or when the commercial lease ends. It has the same meaning as “disrepair” and is usually tied in with the decoration and repair obligations stated in the commercial lease agreement. 

Dilapidation costs can have financial implications for commercial tenants, so it is important that they understand these implications fully before signing a commercial lease with a landlord. Tenants should be fully aware that they may find themselves liable for dilapidation costs for pre-existing damages or conditions if they are not identified and recorded within the commercial lease and these are brought up at the end of their lease. 

What Can Landlords Do About the Breach of Repairing Covenants? 

A commercial lease is similar to any other legal contract, so the remedies available will depend on the specific wording used within the lease. However, there are certain restrictions when it comes to the landlord’s remedies for repairing covenants. This means that landlords tend to avoid pursuing damages as a solution to a breach of a repairing covenant, especially during the term of a commercial lease. 

Quite often, rather than seeking damages while the lease is ongoing, a landlord will instead choose to forfeit the lease, especially if they want the property back. For a landlord to be able to forfeit the lease when there has been a breach of a repairing covenant, the landlord must express a right of re-entry for the breach and must follow a notice procedure. 

Dilapidation Costs At The End Of The Lease

Following a lease expiration, a measure of damages to remedy the dilapidations is the cost of the landlord doing the work needed plus a loss of rent for the time frame while the work is completed. Any claim of dilapidation costs needs to be reasonable, so if there is a very minor issue that would cost a large sum of money to fix, then this is seen as being out of proportion to the actual damage, so the landlord isn’t entitled to a benefit. 

However, the court will often look into what the actual difference in property value is should these issues arise at the end of a commercial lease. The landlord may be able to carry and recover a loss of rent for the necessary period needed to carry out repair work, and the landlord will likely need to show evidence that there has been a loss of rent due to being unable to re-rent the commercial property. 

There are a number of options available for both tenants and landlords when it comes to resolving dilapidation costs and claims. Contact us today for assistance.