Dilapidation Costs

What dilapidation costs actually are

Dilapidation costs can take several forms. They may be the cost of physical works the tenant carries out before lease expiry. They may be the cost of works the landlord carries out after vacant possession and then recovers as damages. They may be a negotiated settlement in which the tenant pays a lump sum in place of works — sometimes called a payment in lieu. For the formal claim that sets out those costs, see the terminal schedule of dilapidations guide.

In every case, the starting point is a proper assessment against the specific lease clauses, and the end point is a figure that reflects actual loss, not a wish-list refurbishment.

Key factors that drive the cost

• Lease wording — the exact repair, decoration, reinstatement and yielding-up clauses.
• Any schedule of condition that limits the standard of repair required.
• The scope and quality of licensed alterations during the term.
• The type of occupancy and the wear profile it produces over the lease.
• The length of the lease and the decoration cycles it covers.
• Market labour and materials rates at the time works are priced.

How the cost is calculated

The calculation is a surveyor's exercise rather than a quantity-surveyor-only one. It has to be tied back to the lease at every stage, because a cost that cannot be justified under the covenants is not recoverable. The starting point is usually a dilapidation report tying each finding to the specific lease obligation.

• Inspection of each element against the specific lease clauses in play.
• Scheduling of each alleged breach with a proportionate scope of works.
• Pricing each item on a realistic rather than wish-list basis.
• Cross-checking against licences to alter, consents and any schedule of condition.
• Testing Section 18 and supersession where they are likely to bite.

Statutory and practical caps

Several concepts can reduce — or occasionally eliminate — recoverable cost, regardless of the opening schedule total.

• Section 18 of the Landlord and Tenant Act 1927 caps damages at the diminution in value of the reversion.
• Where redevelopment or substantial alteration is planned, the second limb of Section 18 can eliminate recovery entirely.
• Supersession can strip out individual items that would have been overtaken by the landlord's planned works.
• A schedule of condition can cap the standard of repair at the state of the premises at lease start.
• Unreasonable or over-specified works cannot be recovered in full, even where a breach is proven.

For more detail see the guides on Section 18 and supersession.

Negotiating the final figure

Negotiation of dilapidation costs is rarely a single event. It usually proceeds line by line, informed by the Dilapidations Protocol, and often concludes at a without-prejudice meeting once both sides have exchanged their cost positions.

• Treat the schedule total as an opening position, not a bill.
• Price each item independently rather than accepting the landlord's rate card.
• Raise Section 18, supersession and any schedule of condition early.
• Document the actual condition on vacation with dated photographs.
• Engage promptly under the Dilapidations Protocol to avoid costs criticism later.

Managing cost exposure over time

For tenants, the most effective cost-control strategies are the ones used across the life of the lease, not the ones invented at the end.

• Understand the lease obligations at the start of the term, not at the end.
• Budget a dilapidations provision over the life of the lease rather than facing one-off exposure.
• Commission an independent dilapidation report 12 to 18 months before expiry.
• Plan reinstatement and decoration works with enough lead time to tender properly.
• Consider payment in lieu of works where the landlord intends to refurbish regardless.

See also the dilapidations provision guide for the accounting side, and the dilapidation works guide for the practicalities of carrying out the repairs.