Warehouse Dilapidations: What They Are and How to Reduce the Cost

Your warehouse lease is ending. The landlord sends over a schedule of dilapidations with a large number attached. It can be a shock, and the figure is often bigger than it needs to be.

Here is what dilapidations actually are, how the process works, and the practical ways to bring the cost down. This is a plain guide, not legal advice, so treat it as a starting point and get proper advice on your own lease.

What dilapidations are

Dilapidations are the breaches of the promises you made in your lease about the condition of the building. Most commercial leases require the tenant to:

• Keep the building in repair
• Redecorate at set points or at the end
• Remove any alterations you made and put the building back as it was (reinstatement)
• Hand it back in a defined state at the end (yielding up)

When you do not meet those obligations, that is dilapidations. The landlord sets out what they say is wrong, and what it will cost to fix, in a schedule.

There are two types. An interim schedule is served during the lease. A terminal schedule is served at or after the end. Most warehouse disputes are terminal, and that is the focus here.

How the process works

In England and Wales the process follows the Dilapidations Protocol. In short:

• The landlord prepares and serves a schedule of dilapidations, listing the breaches and the works needed.
• Alongside it comes a Quantified Demand, which is the money they are asking for.
• You respond, usually within about 56 days, setting out your position item by item.
• Both sides are expected to negotiate and settle rather than go to court.

Scotland works differently, so this applies to England and Wales.

The key thing to understand is that the schedule is the landlord's opening position. It is not a bill you have to pay in full. It is the start of a negotiation.

Why the first number is usually too high

Two rules often bring the figure down a long way. Both are worth knowing.

The Section 18 cap. Under Section 18 of the Landlord and Tenant Act 1927, the landlord cannot recover more than the amount your breaches have reduced the value of their building. Not the cost of the works. The drop in value.

That difference matters. Say the works in the schedule are priced at £300,000. But the building is worth only £150,000 less in its poor state than it would be if you had kept it up. Then the landlord can recover £150,000, not £300,000, even though the schedule says £300,000. On older or lower-value buildings, the gap can be large.

The redevelopment rule. If the landlord is going to knock the building down or significantly alter it, the repairs become pointless. In that case they may recover nothing for those works, because your poor repair made no difference to what they were going to do anyway. The same idea applies if an incoming tenant is going to rip it all out and fit their own space. Why should you pay to repair something that is about to be removed?

So before you accept the number, the real questions are: how much has the value actually dropped, and what is the landlord planning to do with the building? A good surveyor will press both.

Your two options, and why doing the works is often cheaper

When a claim lands, you broadly have two ways to deal with it.

1. Pay a cash settlement to the landlord.
2. Carry out the works yourself before you hand back.

Doing the works yourself is often the cheaper route. When the landlord prices a schedule, the figure tends to sit at the top end. When you appoint your own contractor to do only what the lease actually requires, you control the scope and the cost. You do the reinstatement, the repairs and the redecoration, hand back a building that meets the lease, and the claim falls away.

This only works if you start early. Leave it to the last few weeks and you lose the option, because there is no time to do the work, and you end up paying whatever gets negotiated.

The one thing that protects you most

If you are reading this before signing a lease, this is the most useful part.

Get a schedule of condition done at the start, and make sure it is referenced in the lease. It is a dated record, usually with photos, of exactly what state the building was in when you took it on.

Without one, the landlord sets the standard at the end, and you can be pushed to hand back a building in better condition than you got it. With one, your obligation is fixed to the recorded baseline. Anything already worn or broken when you moved in cannot be pinned on you later. It costs little to commission and routinely saves tenants far more than it costs.

If you already hold a lease with no schedule of condition, you cannot go back and create one, but everything else in this guide still applies.

Get the right people on it

Two different jobs here, and it helps to be clear on who does what.

• A chartered building surveyor advises on the claim itself, checks the schedule, and negotiates with the landlord's surveyor. If the value question is in play, a valuer prepares the diminution figure. This is the professional advice side, and it is not our role.
• A contractor carries out the physical works: the strip-out of your alterations, the reinstatement, the repairs and the redecoration. That is our role.

The two work together. The surveyor tells you what you actually have to do. We do it, properly and to the standard the lease requires.

How we help

We carry out warehouse dilapidations works across London and the South East. Through our sister company, Strip Out Company, we handle the strip-out of tenant alterations, reinstatement back to the original layout, repairs and redecoration, and we do it on the deadline your handover demands.

Because strip-out and reinstatement is our core work, not a sideline, we can price a schedule realistically and carry out only what is needed, which is usually a good deal less than the landlord's opening figure. Work with a surveyor on the claim, and let us handle the works, and you are in the strongest position to keep the final cost down.

A note for the team: a real example would be powerful here. For instance a tenant who faced a large schedule and settled it for much less by carrying out the works, or a warehouse reinstated to hit a tight lease-end handover. A genuine figure would make this land.

Do not leave it late

The tenants who pay the most are the ones who deal with dilapidations in the last few weeks. The ones who pay the least start early, take proper advice, and do the works on their own terms.

If your warehouse lease is coming up and you want a realistic view of the works and the cost, the first site visit is free. Send us the schedule if you have one, and we will tell you where you stand.