Dilapidations and demised premises: Where’s the rest of it?
Ben Sercombe makes the case for all parties to better document the contents of Demised Premises in their leases, to help reduce the expense, time and frustration which can result from dilapidations negotiations.
The decision in the case of Capitol Park Leeds PLC v Global Radio Services has generated interest as one of few recent cases in the world of dilapidations.
For those who missed it, the decision involved a lease break and the usual understanding of Vacant Possession was somewhat side-stepped. The provision of Vacant Possession allows the landlord to use the building without being impeded by the previous tenant’s occupants, chattels (and possibly tenant’s fixtures). However, in this case the tenant stripped out too much, so the Demised Premises was not all physically returned to the landlord. Unfortunately for the tenant, their lease break was therefore found to be invalid.
This begs the question: why not routinely document the constituent parts of the demise at the outset of a lease?
This is a formality for Assured Shorthold Tenancies, and many of us recall from early renting days – often as students – the ominous checking of the inventory by the landlord and pursuit of our rental deposit. In commercial leases there is usually a property definition, prepared by the solicitors. However, this is often generic and refers to ‘land and buildings’ or, in the case of internal repairing leases, sufficient detail to define the internal extents of the demise. It will be full of legal phrases such as ‘walls severed medially’.
It is almost unheard of for a solicitor to inspect the property for this purpose, let alone to find a detailed description, inventory, or photos within a lease for the purpose of identifying the elements in a building. A photographic schedule of condition can pick up on this to a degree, but it is prepared specifically to limit repairing liability by recording condition.
The very nature of dilapidations is a negotiation, and landlords and tenants who have been through the dilapidations process will know that it can be expensive, time consuming, and frustrating. This is particularly true when parties cannot agree on the definition of the Demised Premises or when they demand evidence from lease commencement.
Let us take carpets as an example. Were they demised? Do they belong to landlord or tenant? Are they chattels or fixtures? Who installed them? Who paid for them?
Providing evidence to answer these questions is difficult, particularly at the end of a 10-year lease term. This will inevitably lead to dispute. The significant work carried out by the RICS on their Dilapidations Guidance Note, and the creation of the Dilapidations Pre-Action Protocol have made great progress to reduce expensive litigation and court cases, as shown by the scarcity of recent dilapidations case law.
It makes sense, in further pursuit of concord at lease end, to fully document at lease commencement the elements that comprise the Demised Premises.
How should you document the Demised Premises?
Call a Dilapidations surveyor! They have the perfect combination of technical building knowledge and an understanding of the subtleties of dilapidations.
When should you compile a Demised Premises document?
For a new build: A detailed description can be prepared by the landlord when construction is complete, ready to attach to a future lease.
For an occupied premises: Once the existing tenant vacates, and after any dilapidations works are carried out (by either party), but prior to the new tenant’s occupation/fit-out works. A quick turn-around on the document may be required, but inspection timing is most critical.
Clarify funding responsibilities
The other issue would be where the landlord is funding repairs or alterations that the tenant carries out. The tenant may well do these concurrently with their fit-out making the distinction between landlord and tenant works complex. In a usual lease these works would be separately documented, so as long as this was clear, the same ends are achieved. (i.e. The lease would have a document attached showing who did and paid for what works).
If you have further questions on dilapidations for commercial property, including how you can get started with documenting your Demised Premises, contact us to find out more.