What dilapidation means
Dilapidation is the gap between the state the premises are in and the state the lease required them to be in.
Commercial leases contain repairing covenants. Depending on the drafting, a tenant may be required to keep the premises in repair, in good repair, or in good and substantial repair, and to yield them up in that condition at the end of the term. There may also be obligations to redecorate at intervals and to reinstate alterations.
A dilapidations claim is the landlord's claim for the tenant's failure to comply with those obligations. It usually arrives at or shortly after the end of the term, when the tenant has moved out and is expecting the return of any deposit.
The amount can be substantial, particularly on a full repairing lease where the tenant took on responsibility for the whole of the premises including the structure.
How it is used
Claims are made through a schedule of dilapidations, prepared by a surveyor.
An interim schedule is served during the term, requiring the tenant to carry out works. It is used where a landlord wants the premises maintained rather than compensated for at the end.
A terminal schedule is served at or after the end of the term. It lists each breach, the works required, and the cost claimed.
The tenant responds, and the negotiation is usually about three things: whether each item is actually a breach of the covenant, whether the works claimed are the appropriate remedy, and whether the cost is reasonable.
The measure of damages is the important control. A landlord's claim for a breach of a repairing covenant at the end of a term is generally capped by the amount by which the value of the landlord's interest has been reduced by the disrepair. Where the landlord is going to demolish or comprehensively refurbish the premises anyway, the tenant's failure to redecorate has diminished the value of the reversion by very little, and the claim reduces accordingly.
That principle is what turns a large schedule into a negotiated figure.
Key features
- Disrepair for which a tenant is responsible under the lease
- Arises from repairing, decorating and reinstatement covenants
- Claimed through an interim or terminal schedule of dilapidations
- Prepared by a surveyor and itemised by breach and cost
- Damages are generally capped by the diminution in the value of the reversion
- Most claims are negotiated rather than litigated
How this works in Nigeria
Dilapidations claims are a commercial leasing issue rather than a residential one, and the exposure follows the drafting.
A Nigerian commercial tenant taking premises on a full repairing basis is accepting responsibility for a building whose condition they did not create. Where the premises were already in poor condition at the start, the obligation to yield up in repair can require the tenant to hand back something better than they received.
The protection is a schedule of condition, prepared and agreed at the start of the term, photographing and describing the premises as they were. It caps the tenant's obligation at that condition and it is the single most valuable thing a commercial tenant can do at the outset. Very few Nigerian tenants do it.
Reinstatement is the second exposure. A tenant who fitted out the premises, installed partitions, cabling and equipment, may be required to remove all of it and make good. That cost is rarely budgeted for, and it lands at the moment the business is also paying for a new location.
The practical negotiation points at exit are the diminution in value cap, the landlord's actual intentions for the premises, and whether the works claimed are the reasonable remedy rather than an upgrade.
For landlords, the corresponding point is that a schedule prepared by a surveyor carries weight that a list written by the letting agent does not.
Dilapidations vs fair wear and tear vs caution fee
Three concepts that meet at the end of a letting and mean different things.
Dilapidations are breaches of the tenant's repairing and related covenants under a commercial lease, claimed as damages and usually measured by a surveyor's schedule.
Fair wear and tear is the deterioration that follows from ordinary use over time. Where the lease excepts it, and most repairing covenants do, the tenant is not liable for it, and the argument is about which side of the line an item falls.
Caution fee is the refundable deposit in a Nigerian residential tenancy, held against damage and unpaid bills. It is a small sum returned less genuine deductions, and it operates in a different world from a commercial dilapidations claim.
A residential tenant argues about a caution fee. A commercial tenant on a full repairing lease argues about a schedule, and the sums are not comparable.
Limits and risks
The diminution in value cap is a real limit on landlords. A schedule listing every scuff and mark can be worth a fraction of its face value where the landlord's plans for the building make the works irrelevant.
Fair wear and tear exceptions also cut down claims, and the boundary is a matter of judgment rather than rule.
Proof is required on both sides. A landlord must establish the breach and the cost; a tenant disputing the initial condition needs evidence of what it was, which they usually do not have.
And the negotiation is asymmetric. The claim arrives after the tenant has left, when their leverage has gone and the landlord holds any deposit.
Worth knowing
Prepare and agree a schedule of condition with photographs before you take occupation of commercial premises. It caps your repairing obligation at the condition you actually received, and Nigerian tenants who skip it end up handing back a better building than they were given.
Questions people ask
What are dilapidations?
Disrepair for which a tenant is responsible under the repairing, decorating and reinstatement covenants in a lease. A landlord claims the cost of putting it right, usually at the end of the term.
What is a schedule of dilapidations?
A document prepared by a surveyor listing each alleged breach, the works required and the cost claimed. An interim schedule is served during the term and a terminal schedule at or after the end.
How are the damages measured?
A claim for breach of a repairing covenant at the end of a term is generally capped by the amount by which the disrepair has reduced the value of the landlord's interest, which can be far less than the cost of the works.
What is a schedule of condition?
A record of the state of the premises at the start of the term, with photographs, agreed between the parties. It caps the tenant's repairing obligation at that condition and is the most valuable thing a commercial tenant can do at the outset.
Am I liable for fair wear and tear?
Where the lease excepts fair wear and tear, and most repairing covenants do, no. The argument is usually about which side of that line a particular item falls.
Do I have to remove my fit out?
If the lease contains a reinstatement obligation, yes, and the cost is rarely budgeted for. Check that clause before you fit out, not at the end of the term.