By Jonathan Hand, founder of The Lease Negotiator
When exiting a commercial lease, there are several important factors you should consider, and dilapidation costs is among the most significant.
Dilapidation costs are incurred when restoring a leased property to the agreed condition outlined in the lease. Many businesses overlook these expenses while focusing on relocation, but failing to account for them can lead to unexpected financial burdens.
According to the Royal Institution of Chartered Surveyors [RICS], the average cost of dilapidations is approximately £7.27 per square foot. But, with careful planning and strategic decision-making, these costs can often be significantly reduced or even eliminated.
Here are some key insights to help you navigate this often-complex process.
1. Allow sufficient time for planning
Planning is essential when it comes to lease exits, and preparing months in advance allows for any necessary repairs and maintenance to be carried out in a cost-effective way.
Reviewing maintenance logs can also provide you with a clear record of completed work, outstanding issues, and cost estimates, ensuring a smoother exit process overall.
2. Review your lease terms and documentation
A thorough review of your lease agreement is essential to understand your repair and maintenance obligations.
Additionally, if a schedule of condition exists, you should carefully examine it. This document provides a recorded assessment of the property at lease commencement and often includes detailed descriptions and photo evidence of pre-existing damage.
Using this as a reference can help you avoid unnecessary dilapidation costs and ensure you are fully compliant with the terms of your lease.
3. Engage in open communication with your landlord
Maintaining transparent communication with your landlord can help you clarify responsibilities and prevent disputes before they arise.
Early discussions can help resolve ambiguities and lead to a mutually beneficial agreement.
4. Budget for unexpected costs
Having a financial buffer set aside for potential dilapidation expenses is a wise and proactive measure that can protect your business from unforeseen financial strain.
Costs may include repairs, professional fees, and possible compensation claims. If your property is not restored to the agreed-upon condition, you may face legal action, so it is essential to have sufficient funds available for compliance.
5. Seek professional advice
If you are uncertain about your dilapidation obligations or are facing a potential dispute, it is highly recommended to seek expert guidance.
Industry professionals can provide strategic advice, assist in cost negotiations, and streamline the process, ultimately saving time and reducing financial exposure. Many advisory firms offer free initial consultations, making professional support an accessible and valuable resource.
Ensuring a smooth transition
Commercial property agreements are complex and can present significant challenges for businesses at the end of a lease term. Without careful planning, unexpected costs and legal complications can arise.
Regardless of the size or scope of your lease, professional support and strategic preparation can help ensure the transition is seamless and allow your business to focus on future growth without financial setbacks.
By following these steps and utilising expert guidance, you can effectively manage dilapidation costs and exit your commercial lease with confidence.
