The Dilapidations Dilemma - Making the Right Call Before Lease Expiry

As a lease approaches expiry, tenants often face a critical decision: should they invest in repairing the premises or negotiate a financial settlement with the landlord? 

The wrong choice can lead to unnecessary costs, legal disputes, or operational disruptions. Navigating dilapidations effectively requires foresight and strategic planning. Those who act early have more control over the process, giving them leverage to secure a favourable outcome.

Dilapidations refer to breaches of lease obligations, whether express or implied, typically relating to reinstatement, repair, decoration, statutory compliance, or other specific requirements. As the lease expiry date approaches, this liability becomes a critical consideration. Tenants who proactively assess their obligations well in advance gain greater flexibility in managing the dilapidations process and determining the most strategic course of action.

Undertaking the Works, Pros and Cons

Carrying out physical repairs before lease expiry presents several advantages. It allows tenants to maintain direct control over the quality and standard of work, ensuring repairs meet the required specifications. By personally managing contractors, selecting materials, and overseeing the process, tenants avoid handing control over to the landlord, which can be beneficial in achieving cost efficiency and maintaining quality assurance. Additionally, tenants can often complete repairs more economically than the landlord’s estimated costs, particularly if they have established relationships with contractors or in-house maintenance teams. Another key benefit is the mitigation of a landlord’s consequential losses; by undertaking the necessary works, tenants can prevent landlords from claiming additional costs such as lost rent, rates, and service charges, which are often incorporated into dilapidations claims.

However, choosing to undertake the works is not always the optimal solution. If a tenant needs to operate from the premises until lease expiry, carrying out repairs may not be practical or safe. Furthermore, executing the works removes the potential for a Section 18 (1) defence, which imposes a statutory cap on the landlord’s claim. 

By opting for a financial settlement instead, tenants may achieve a more favourable financial outcome than if they were to bear the full cost of completing all works strictly required under the lease. Additionally, if there is a dispute between the tenant and landlord over the required scope of works, there is a risk that elements of the completed repairs may not satisfy the landlord’s expectations, leading to further negotiations and a potential financial contribution. If the works overrun, tenants may also find themselves needing to remain in occupation post-lease expiry to complete the repairs, incurring additional liabilities such as rent and other associated costs.

Key Decision Factors

When determining whether to undertake the works or negotiate a financial settlement, several critical factors must be considered. The wording of the lease and the specific clauses governing repairing obligations will dictate the required standard of work. Tenants must carefully assess how onerous these obligations are and ensure any repairs undertaken align with the standard contemplated by the lease. The overall condition of the property and the extent of necessary works should also be evaluated to understand the scope, disruption, and timeline involved. Timing plays a crucial role, as tenants need to consider lease termination in the context of their ongoing operations, financial position, and access to new or alternative premises.

Tenants should also assess their internal resources to determine whether they can effectively manage the works, and the logistical challenges involved. In some cases, vacating early may be necessary to allow sufficient time for repairs before lease expiry, requiring tenants to secure alternative premises as part of their strategy.

Strategic Recommendations

To mitigate risks and maximise their negotiating position, proactive tenants should commission a dilapidations liability assessment well before lease expiry, allowing them to budget appropriately for potential liabilities. Engaging a professional review early in the lease term, and again ahead of expiry, ensures that tenants fully understand their obligations and can make informed decisions. If opting to undertake repairs, implementing a well-managed tender process and construction phase is essential to avoid unforeseen complications. Engaging with the landlord early in the process may also be beneficial, although tenants must exercise caution to avoid inadvertently prejudicing their position.

Managing dilapidations liabilities should be an ongoing process throughout the lease term rather than a last-minute concern. Ideally, tenants should seek specialist advice at least 12 months before lease expiry. This timeframe allows for adequate planning, consultation, and, if necessary, the execution of repair works. The process of tendering, appointing contractors, and completing works requires careful coordination, making it imperative to allocate sufficient time to ensure all obligations are met without incurring additional costs.

Regardless of the chosen approach, tenants should recognise that dilapidations liabilities will almost always entail financial costs. A financial settlement does not absolve tenants of responsibility but may provide a more streamlined resolution. However, both approaches carry inherent risks, and no universal solution exists. Each scenario requires a tailored, case-by-case evaluation, with tenants advised to approach the process strategically to achieve the most advantageous outcome. 

Watts’ Expertise

At Watts, our specialist team has a proven track record of delivering significant savings on landlords’ dilapidations claims. In 2024, we successfully reduced landlords’ initial claims by an average of 68.5% for our clients. In one particularly noteworthy case, we secured a 100% saving on a claim originally valued at approximately £800,000, effectively contesting the entire liability. With decades of expertise in commercial property matters, we meticulously analyse landlords’ claims, challenge unreasonable costs, and negotiate the best possible outcome for our clients.

Engaging professional guidance early in the process ensures tenants receive expert insights tailored to their unique circumstances, empowering them to make informed decisions that protect both their financial and legal interests. By taking a proactive and strategic approach to dilapidations, tenants can navigate this complex process with confidence and control.

Nick Loydall BSc (Hons) MRICS
Associate Director
+44 (0)7561 705029
nick.loydall@watts.co.uk