Commercial lease dilapidations and why leaving it until lease expiry is a costly mistake

For many businesses, the condition of a commercial property only becomes a serious issue when the end of the lease starts approaching. Until then, repairs are often treated as operational matters: something to deal with when a roof leaks, a door fails or decoration starts to look tired. That can be an expensive mistake.

Dilapidations are breaches of lease obligations relating to the condition of a property, and they can cover much more than obvious physical damage. Repair, redecoration, reinstatement of alterations and compliance with other lease covenants can all become part of the discussion when a commercial tenancy ends. RICS describes dilapidations as breaches of lease covenants concerning the condition of a property during or at the end of the tenancy.

For landlords and tenants alike, the most effective way to deal with dilapidations is usually to start thinking about them well before the keys are handed back.

The lease comes first

There is no universal list of works that every commercial tenant must complete. The starting point is the lease.

Repairing obligations can vary significantly between properties. Some tenants may be responsible for little more than the internal parts of their premises, while others occupy buildings under full repairing and insuring leases that place much broader obligations on them.

Alterations can also become important. A tenant may have installed meeting rooms, partitions, signage, specialist lighting, air-conditioning equipment or other improvements during the lease. Even where those works were permitted, the landlord may have the right to require reinstatement at lease end.

Government guidance makes the basic position clear: the lease should specify responsibility for repairs and maintenance, and tenants moving out may need to carry out repairs or return the property to its earlier condition.

This is why the physical condition of the building cannot sensibly be considered in isolation from the lease documentation.

Why early inspections matter

One of the biggest problems with leaving dilapidations until the final weeks of a tenancy is that options disappear.

A tenant who identifies potential liabilities a year before lease expiry has time to investigate them, obtain quotations, plan works and decide whether carrying them out is commercially sensible.

A tenant who receives a substantial schedule shortly before departure has far less flexibility.

An early dilapidation survey can help identify defects and potential breaches before they become part of a rushed end-of-lease negotiation. For landlords, the same process can provide a clearer picture of the building's condition and the work that may be required before the premises can be re-let.

This is not simply about finding cracked plaster or damaged floor finishes.

A survey may consider issues such as:

• roof and external fabric defects

• internal finishes and decoration

• mechanical and electrical installations

• unauthorised or tenant-installed alterations

• damaged fixtures and fittings

• maintenance failures

• reinstatement requirements

• compliance with repairing obligations contained in the lease

The significance of each item will depend on the wording of the lease and the circumstances of the property.

Dilapidations are not simply a contractor's shopping list

Another common misconception is that the cost of every identified defect can automatically be passed from landlord to tenant.

In reality, terminal dilapidations claims are more nuanced.

The official Dilapidations Protocol for commercial property in England and Wales requires a landlord's schedule to identify the alleged breaches, the works required to remedy them and, where relevant, the associated costs. It also requires monetary claims to be properly explained and substantiated. That distinction matters.

The purpose of the process is not simply to produce the largest possible schedule of works. It is to establish what obligations exist, whether they have been breached and what loss has actually arisen as a result.

This is also why professional input from surveyors and, where necessary, property lawyers can be valuable on both sides.

The condition of the building should be documented throughout the lease

Dilapidations are much easier to manage where good records exist.

Schedules of condition, licences for alterations, photographs, maintenance records, service documentation and correspondence between landlord and tenant can all become important several years after they were originally produced.

A schedule of condition prepared at the beginning of a lease can be particularly significant where the repairing covenant refers back to the property's original condition.

Without good documentation, disputes can become arguments about what a building looked like several years earlier and who was responsible for particular changes.

The construction industry increasingly talks about the importance of better building information throughout an asset's lifecycle. Dilapidations are another example of why that information matters after practical completion. Maintenance records and property data are not simply administrative paperwork; they can have considerable commercial value later.

Landlords also benefit from planning ahead

Dilapidations are often viewed primarily as a tenant problem, but landlords also have good reasons to inspect buildings before lease expiry.

The landlord may be planning to refurbish, redevelop or re-let the property. Those intentions can affect which works actually matter commercially.

Early inspection also allows the landlord to understand the likely condition of the premises before they become vacant, rather than discovering unexpected defects once rental income has already stopped.

This can help with budgeting, procurement and programming future works.

Where several trades are required, sufficient lead time can be particularly important. Roofing, mechanical services, flooring, decoration and specialist reinstatement works can quickly become difficult to coordinate when everyone is working towards the same lease-end date.

The formal process matters

Where a terminal dilapidations claim develops into a dispute, landlords and tenants in England and Wales should be aware of the formal Pre-Action Protocol.

Its stated aims include encouraging an early exchange of information, helping parties settle without litigation where possible and ensuring that any eventual proceedings can be managed efficiently.

RICS also publishes a dedicated professional standard covering subjects including inspections, schedules of dilapidations, quantified demands, responses, diminution valuations and dispute settlement. The current seventh edition was published in 2024.

These frameworks reinforce a broader point: dilapidations should be approached as a structured property and contractual process, not simply as a last-minute argument over repair invoices.

A better approach to lease expiry

For tenants, the practical lesson is simple: do not wait until the removal vans are booked before thinking about repairing obligations.

Review the lease early. Understand what alterations have been made. Inspect the property. Identify potential liabilities. Keep records. Obtain advice where the potential exposure justifies it.

Landlords should take a similarly proactive approach, particularly where the condition of the property could affect future letting plans.

A commercial building may change considerably during a five, ten or fifteen-year tenancy. The earlier both parties understand its condition and their respective obligations, the greater the opportunity to deal with problems sensibly rather than under pressure.

In dilapidations, time is often one of the most valuable tools available.