Interim Dilapidations on pub lease
We had been instructed by our client, the tenant/publican who was looking to move onto another pub and had received from the brewery (property company / landlord) a Dilapidations. This is the second Dilapidations that had been served and is what is known as an Interim Dilapidations.
Interim Dilapidations aren't necessarily what they seem. Interestingly the first Interim Dilapidations served on our client had now doubled with the serving of a second Interim Dilapidations. The problem with Interim Dilapidations is that they are not final and can be amended forever and a day by the landlord until a Final Dilapidations is served.
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Landlord has no obligation to send a Dilapidations
One of the common mistakes we find is that the occupier or tenant of a property will wait for the landlord to serve a Dilapidations notice. However, the landlord has no legal requirement to serve a Dilapidations notice whilst the tenant is in the property. There is a Dilapidations protocol in place that has been put together with a legal team and the Royal Institute of Chartered Surveyors that gives guidance on this matter.
Protocol gives guidance, and it is only guidance, that a Dilapidations notice is served by the landlord or landlords chartered surveyor 56 days after the end of a lease and then responded to within a set time by the tenant or the tenant's chartered surveyor.
Why wouldn't a landlord serve a Dilapidations?
Landlords/property owners / breweries can be so slow to serve a Dilapidations as there is no legal requirement for them to serve it early whilst you are still in the pub and indeed if it is served once you are out of the pub it then means that any negotiations will be monetary only (a money settlement).
You can get into almost academic arguments over the costs of things. We find the best way of explaining this to people is to say that the landlords/property owners/brewery will tend to use Rolls Royce priced builders whilst tenants/operators will tend to use Reliant Robin priced builders and the true requirement is somewhere in between. However the requirement is stated by the lease. This is why it is important to look at the lease.
Having a detailed look at the lease
What we do is have a detailed look at the lease. We aren't legal advisers but we deal in common sense and advise of the best way forward. The areas that are most costly when a lease comes to an end are looked at and these are what we term as the 4 R's.
The 4 R's are:
4. Statutory Regulations
There is also:
5. Yield up clause which can be specific clauses relating to what you have to do if you want to invoke a break clause.
Break clause defined
This is when you have options within a lease to step out of the lease before the lease ends.
In this particular case the lease is coming to an end and as such the options for the tenant/pub operator (landlord is the common name but a bit confusing in this instance) are:
1. Carry out the work yourself so you can get the best prices although this may impact upon trade
2. For the tenants to accept the Dilapidations which is what was happening in this case, we believe because they didn't feel they could negotiate/argue against
3. Alternatively bring in a Dilapidations chartered surveyor like ourselves who can identify which areas you should carry out work on yourself and which areas you should negotiate on and how best to position you so when you have left the pub and the Dilapidations is still going on many years later (yes that is right we did say many years later), you have put yourself in a good position.
Things we do to help you with a Dilapidations claim
As well as reading the lease and identifying the high risk items, we would also inspect the pub, usually taking a photographic record which is typically 250 to 500 photos, sometimes more, which will then give you a record of what the property looks like if you have to negotiate once you have left.
As mentioned we would also study the lease and will be looking for terms such as Full Repairing and Insuring, whereas in this case we could see that it was an unusual lease where some responsibilities were the landlords / property owners / brewers (yes, we do still come across these).
We help you understand what you do and don't have to do and your likely risk. At the end of the day Dilapidations is a poker playing activity to some extent.
Dilapidations and poker playing
Whether you have or haven't played poker before, the best way to describe what goes on with Dilapidations is poker playing where you will sooner or later lose against the dealer or the house but it is how much you lose which can vary considerably.
Don't be surprised if the Interim Dilapidations schedule costs far more than the priced schedule that you are sent
Many landlords will not send an Interim Dilapidations, some will send an Interim Dilapidations but it will not be a full and final one so they have the ability to add further items. Some will send an Interim Dilapidations that is priced. Probably the most common activity that goes on if you are not used to Dilapidations, and does take your breath away for want of a better term, is the additional amounts that go on over and above the cost of the building work. Don't forget the building work is normally at Rolls Royce prices. These are also such things as:
1. The cost of managing the project which can range from anything from 8% – 20% depending upon the complexity of the work and the value of it. This will all need to be paid for by you.
2. Claiming for lost rent
There are also various other issues.
Back to the pub
Interestingly, with this one if the landlord/property owners/brewery had not increased the Dilapidations claim by such a large amount then the existing operators/publican would have been happy to have paid the Dilapidations and move onto their new business which they are very keen to do. However, when they got a second Interim Dilapidations a few weeks before they were due to leave the pub and it had almost doubled in value they phoned us which meant a few things:
1. They got expert advice from Chartered Dilapidation Surveyors who are used to dealing with this type of thing.
2. They began to understand the liability they have.
3. They realise fully that they had very little time to resolve any matters.
Dilapidations - the answers vary, there isn't one correct answer
We have made this comment because depending upon the tenant/operators/publicans situation there are all sorts of scenarios and best ways to resolve things. Probably our main bit of advice is to get expert advice. You don't want to go into the lions den without the lion tamer! And you certainly don't want to think that you understand what the terms mean, for example:
‘Put and keep' is a phrase commonly found in leases relating to the repairs and redecorations and ‘good and substantial' is another term that is used.
We have recently come across an example where they were both used together. It is very hard to understand what is meant with these terms, for example:
Would ‘good' in a back street boozer be the same as ‘good' in a top end gastro pub?
Establish who is who
It is very important to establish who to negotiate with and you would be surprised how little power the Area Managers or the Business Development Managers that you have been dealing with from the brewery/property company have when it comes to the Dilapidations.
Independent advice on Dilapidations
If you have received a Dilapidations or an Interim Dilapidations or are coming to the end of your lease and haven't received a Dilapidations we can provide help and advice. Please free phone 1stAssociated.com on 0800 298 5424 for a friendly chat with one of our surveyors.
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