Understanding the Value of Interim and Terminal Schedules of Dilapidations in Commercial Leases

Article originally published on Novaloca on 28 November 2024.

When managing and dealing with commercial properties, one of the most critical aspects is dilapidations. For both landlords and tenants alike, the responsibility to maintain a property as per the lease terms is crucial not just for the physical state of the asset but also for the financial and legal implications for all parties involved.

Given the complexity of the process, taking a proactive approach on dilapidations can help prevent disputes, reduce costs and protect asset value. There are typically two stages or types of dilapidations schedule: interim (during the lease) and terminal (at lease end).

Interim schedules are often overlooked. Utilised correctly, this can provide a comprehensive structure for managing a commercial lease in relation to ongoing maintenance of the property. An interim schedule is issued during the lease term. For landlords, regular inspections and reporting serve as a means of ensuring that the value of their assets and their condition is maintained to provide peace of mind, ensuring that tenants are not neglecting their repairing obligations.

From a tenant’s perspective, they offer the opportunity to establish a positive relationship with the landlord. The regular maintenance of building elements, plant and equipment will prolong their useful life and can often negate unexpected financial burdens at lease end.

A terminal schedule is prepared towards the end of a lease and outlines the tenant’s responsibilities for returning the property in accordance with the lease obligations. It includes specific repairs, removal and reinstatements and can include cost estimates as a measure of the financial loss that will be suffered should the property not be returned as required by the lease obligations.

At the same time, it can be considered the first step in the negotiations between the tenant and landlord regarding any final settlements at lease end. This is particularly important when repairing obligations cannot be fulfilled by the tenants during the course of the lease and financial compensation for the loss may be required.

For landlords, the final or terminal schedule is also essential for planning post lease actions. By understanding the full scope and financial implications of repairs and reinstatements, owners can allocate resources efficiently and reduce the void period between occupancies.

Tenants should treat final or terminal schedules as a potential roadmap for their exit strategy. They benefit from knowing the extent of their responsibilities in advance, giving them time to address issues progressively and potentially avoiding costly legal disputes.

With the implementation of an effective schedule of dilapidations, the post lease discussions between parties should be more open and constructive, and hopefully lead to a smooth exit.

Ryden’s Building Consultancy experts can assist in navigating the complexities of the dilapidation process for both landlords and tenants with confidence. We will quickly establish responsibilities of parties under lease agreements, assess condition, identify necessary repairs and provide cost effective solutions at every stage of the dilapidations.

Our role extends beyond this and we offer strategic and personalised advice that aligns with our client’s goals and specific requirements. With the correct support, a proactive approach to dilapidations will ensure a smoother process and a beneficial outcome for all parties involved.

For further information, get in touch with our Building Consultancy experts here.