The dilapidations bill that arrived after we moved out

We left the office in better condition than we found it. That was not a self-serving opinion; it was obvious. When we took it, the place had a suspended ceiling with water stains, carpet tiles from a previous decade and one meeting room. We put in glass partitions, new lighting, a kitchen and a decent server cupboard. We spent about £60,000 of our own money doing it, and we were quietly proud of the result.

Nine weeks after we handed back the keys, a schedule of dilapidations arrived from the landlord's surveyor claiming £74,000. A substantial part of it was for taking out the things we had put in.

That is when I learned that a dilapidations claim is not an argument about whether the property is nice. It is an argument about the wording of a lease you signed years ago and probably skimmed.

What a schedule of dilapidations actually is

At the end of a commercial lease, the landlord assesses whether you complied with your obligations to repair, decorate, and give the premises back in the state the lease requires. Where you did not, they claim damages. The document setting that out is a schedule of dilapidations: a room-by-room list of alleged breaches, the works required to remedy each one, and a cost against each item.

There are two kinds. An interim schedule is served during the term, and is really a demand that you put things right while you are still in occupation. A terminal schedule is served at or after the end of the lease, and is a claim for money.

Three obligations generate almost all of the cost. The repairing covenant, which on a full repairing and insuring lease makes you responsible for keeping the whole premises in repair — a standard measured against the condition at the start, unless the lease says otherwise. The decorating covenant, which typically requires redecoration in the final year of the term. And the yielding-up clause, which sets out what state the premises must be in when you leave.

Nobody negotiates the yielding-up clause. Everybody pays for it.

The clause that did the damage was the one about improvements

Our schedule broke down roughly as follows: redecoration throughout, £18,000. Replacement ceiling tiles and carpet, £16,000. Mechanical and electrical items — a boiler service history we could not produce, two failed heaters, emergency lighting testing — £12,000. Removal of our partitions and reinstatement of the open-plan layout, £22,000. Surveyor's and solicitor's fees, £6,000.

The £22,000 was the one that stung, and it was entirely our own doing. When we installed the partitions, the landlord gave consent. That consent came in a licence for alterations, and in that licence was a clause requiring us to reinstate the premises to their original layout at the end of the term if the landlord served notice requiring it. We read the licence as permission. It was permission plus a liability.

That is the single most common expensive surprise in dilapidations. Every improvement you make with consent is potentially something you have agreed to undo. Whether you actually have to depends on the exact wording — some licences require reinstatement automatically, some only on notice, and some by a deadline the landlord has to meet. Ours required notice, and the notice had been served correctly.

Section 18(1): the cap most tenants never mention

Here is the counterweight, and it is a strong one. Section 18(1) of the Landlord and Tenant Act 1927 caps damages for breach of a repairing covenant at the amount by which the value of the landlord's reversion — their interest in the property — is actually diminished by the breach. Not the cost of the works. The loss in value.

The distinction is enormous, because those two figures are frequently miles apart. If the landlord relets to an incoming tenant who is going to strip the place out and fit it to their own specification, the fact that our carpet was worn made almost no difference to what the property was worth. The landlord cannot recover the cost of works that produce no loss in value.

The second limb of section 18(1) goes further: no damages at all for failure to repair if the premises are to be demolished, or structurally altered so extensively that the repairs would be rendered valueless.

There is also the related doctrine of supersession — you do not pay for work the landlord was going to do anyway as part of their own plans for the property. If they were always going to replace the ceiling as part of a refurbishment, our ceiling tiles were never a real loss.

None of this is automatic. It only bites if you raise it, and ideally if you get a diminution valuation from a surveyor to put a number on it. The claim starts as a cost of works because that is the version the landlord's surveyor prepares.

What the Protocol requires, and why the dates matter

Dilapidations claims in England and Wales are governed by a pre-action protocol, and it imposes a timetable on both sides.

The landlord should send the schedule and a quantified demand — the actual sum sought — within a reasonable time, generally within 56 days after the end of the tenancy. The schedule must be endorsed by the landlord or their surveyor confirming that the works listed are reasonably required to remedy the breaches, that full account has been taken of the landlord's intentions for the property, and that the costings are reasonable. That endorsement matters: it is a signed statement that the landlord's plans for the building have been considered, which is exactly the ground on which supersession arguments are won.

The tenant should then respond within a reasonable time, usually 56 days from the quantified demand, item by item, saying what is admitted and what is disputed and why. If the landlord is not going to carry out all the works, they should provide a formal diminution valuation before issuing proceedings unless it would be reasonable not to. The tenant's own diminution valuation should follow within 56 days of receiving the landlord's detailed breakdown.

Missing your 56 days does not end your defence, but it removes your best leverage and can affect costs if it ever reaches court. Ours arrived while we were mid-move, and we very nearly let the clock run.

What we settled at

We instructed a building surveyor, which cost about £3,500 and was the best money spent in the whole episode.

He knocked out the boiler items on the basis that the lease obligation was to keep in repair, not to produce a service history. He argued supersession on the ceiling and carpet, because the landlord's own planning application showed a refurbishment of that floor. And he obtained a diminution valuation showing the reversion was diminished by around £31,000 rather than the £68,000 of works claimed.

The reinstatement of the partitions we simply had to concede. The licence said what it said.

We settled at £38,000 including the landlord's fees. Illustrative figures, but the shape is the point: the claim came down by about half, and every pound of the reduction came from the lease, the Protocol and the statute rather than from arguing that we had been good tenants. Nobody cared that we had been good tenants.

One more line worth knowing: the landlord can also claim loss of rent for the period the works would take, if the property genuinely could not be relet during them. On a property at £3,000 a month and a ten-week works programme, that is another £7,000 of exposure that never appears in the schedule itself.

What I would do differently, before signing anything

Get a schedule of condition, and attach it to the lease. A photographic record of the property's actual state on day one, agreed by both sides and referenced in the repairing covenant, limits your obligation to that condition. It costs a few hundred pounds and it is the single highest-return document in commercial property. We did not have one, which is why the argument about the ceiling was a valuation argument rather than a factual one.

Read the yielding-up clause before you read the rent. The rent is the number you negotiate; the yielding-up clause is the number you pay later without noticing. The same principle applies to every other unglamorous clause — this is the sort of thing that turns a five-year lease you outgrow from an inconvenience into a cost.

Treat every licence for alterations as a future bill. Before you fit out, work out what reinstatement would cost and negotiate the clause on that basis. It is far easier to remove or limit a reinstatement obligation when the landlord wants you to sign than when you are leaving. That calculation belongs in the payback sums you do at the start, alongside everything else in what a refit actually costs to earn back.

Build a dilapidations provision into your accounts each year. Where you have a present obligation under the lease, you can generally provide for the expected cost across the term rather than absorbing it in one hit at the end. It smooths the profit and, more usefully, it means somebody in the business is looking at the number annually instead of discovering it in a solicitor's letter.

Diarise the last two years of the term. Redecoration obligations usually fall in the final year. Doing them yourself, on your own schedule, with your own contractor, is dramatically cheaper than paying a landlord's surveyor's costing for the same work — often less than half. That decision, made eighteen months out rather than in the last fortnight, is worth more than any argument you will have afterwards.

The broader lesson is the one that applies to every property decision a small business makes: the money is not in the rent. It is in the clauses that only become real at the end, in the same way that a rent review clause sits quietly for five years before it changes everything. Read those first, and take the lease to someone who reads them for a living.

Common questions

What is a schedule of dilapidations?

It is a document, usually prepared by the landlord's building surveyor, listing the ways a tenant has breached the repairing, decorating and yielding-up obligations in a commercial lease, the works needed to put each item right, and a cost against each. An interim schedule is served during the lease term and effectively demands the works are done while you are still in occupation. A terminal schedule is served at or after the end of the tenancy and is a claim for money rather than works. It is not an assessment of whether the property is in good condition generally — it is measured strictly against the wording of your lease.

Can a landlord claim more than the property has actually lost in value?

No. Section 18(1) of the Landlord and Tenant Act 1927 caps damages for breach of a repairing covenant at the amount by which the value of the landlord's reversion is diminished by the breach, which is frequently far less than the cost of the works claimed. The second limb goes further: no damages are recoverable at all where the premises are to be demolished or structurally altered so extensively that the repairs would be valueless. The related doctrine of supersession removes items the landlord intended to replace anyway. None of this applies automatically — you have to raise it, usually supported by a diminution valuation from your own surveyor.

How long does a landlord have to serve a dilapidations claim?

The pre-action protocol expects the landlord to send the schedule of dilapidations and a quantified demand within a reasonable time, generally within 56 days after the tenancy ends. The schedule should carry an endorsement from the landlord or their surveyor confirming the works are reasonably required, that the landlord's intentions for the property have been taken into account, and that the costings are reasonable. The tenant should then respond item by item, usually within 56 days of the quantified demand. Missing your own deadline does not destroy your defence, but it weakens your position on costs and removes leverage in negotiation.

How do I avoid a big dilapidations bill at the end of a lease?

Three things, in order of value. First, agree a photographic schedule of condition at the start and attach it to the lease, so your repairing obligation is limited to the condition the property was actually in rather than an abstract standard. Second, treat every licence for alterations as a future liability — most contain a reinstatement clause requiring you to undo the works, and that clause is far easier to limit before you fit out than when you leave. Third, do the redecoration obligations yourself in the final year, on your own schedule with your own contractor, rather than paying a landlord's surveyor's costing for the same work.

AD Solicitors, a separate SRA-regulated law firm, has a guide to dilapidations claims at the end of a lease.