Selling a Commercial Lease... Dilapidation?
Discussion
Evening all,
I urgently need some solid information/advice regarding the sale of a commercial lease.
Is dilapidation due when selling/assigning an existing lease to someone else, or only when a lease comes to an end or is surrendered by the leaseholder?
(FYI the lease is for a shop which was run as a take-away, is now closed, and has 12 years to run).
Thank you.
I urgently need some solid information/advice regarding the sale of a commercial lease.
Is dilapidation due when selling/assigning an existing lease to someone else, or only when a lease comes to an end or is surrendered by the leaseholder?
(FYI the lease is for a shop which was run as a take-away, is now closed, and has 12 years to run).
Thank you.
If there are dilapidations eventually due because of the state of the building when you assign the lease then it is reasonable that you contribute towards the future liability that the assignee takes on.
If they are proposing to strip the property then you could argue that their works obviate the dilapidations issue, but subject to negotiation obviously.
Thank you for your prompt reply.
The potential incoming tenant intends to keep the shop as it is, save for a few cosmetic touches according to taste.
He is happy to buy my lease with the shop in its current state (I refurbished it completely when I purchased the lease in 2012 - it was a bomb site when I took over.)
The issue is being caused by the landlord, who is insisting that I surrender my lease so that he can issue a new, longer lease to the incoming tenant (he wants a 25 year lease, where as I have 12 years remaining on mine). This would however mean I face dilapidation costs, which I was hoping wouldn’t apply if I sold/reassigned the lease rather than surrendered it.
Legally do I need to contribute towards these costs? Personally I feel the landlord is just trying to squeeze what he can out of me before I break free of him!!
The potential incoming tenant intends to keep the shop as it is, save for a few cosmetic touches according to taste.
He is happy to buy my lease with the shop in its current state (I refurbished it completely when I purchased the lease in 2012 - it was a bomb site when I took over.)
The issue is being caused by the landlord, who is insisting that I surrender my lease so that he can issue a new, longer lease to the incoming tenant (he wants a 25 year lease, where as I have 12 years remaining on mine). This would however mean I face dilapidation costs, which I was hoping wouldn’t apply if I sold/reassigned the lease rather than surrendered it.
Legally do I need to contribute towards these costs? Personally I feel the landlord is just trying to squeeze what he can out of me before I break free of him!!
Do you have the right to sublet/assign?
Does the new tenant want a new 25 year lease (!) or is he happy to take a sublet or assignment for you?
What does the lease say about repairs? Do you have to put or keep the building in repair?
Is there a Schedule of Condition that proves it was in a poor state when you took the lease and have improved the property?
Overall, I think you need professional advice from a Landlord and Tenant surveyor.
My understanding was that Dilapidations costs are to enable the LL to reinstate te premises into the same condition as they were at the start of the Lease. If the LL and tenant cant reach a compromise then doesn’t the Landlord actually have to incur the repair costs in order to be able to claim them from the Tenant?
Countdown said:
My understanding was that Dilapidations costs are to enable the LL to reinstate te premises into the same condition as they were at the start of the Lease. If the LL and tenant cant reach a compromise then doesn’t the Landlord actually have to incur the repair costs in order to be able to claim them from the Tenant?
I don’t believe so. They can be assessed by a surveyor, or the landlord can simply require the tenant to do them.The issue is more whether the landlord can force the tenant to surrender their lease and that, given this isn’t a trigger for dilapidations, but actually an agreed ripping up of a legal agreement, that it is all simply a commercial negotiation at this point.
He definitely can’t force me to surrender my lease - I’ve held up my side of the deal for the last 8 years and given him no issues. It needs to be a mutual agreement.
I want to sell my lease to this new chap (that too on the cheap), but need to know where I stand as my landlord will be looking to cash in.
I was hoping dilapidation only applied when a lease came to an end for whatever reason, rather than an existing lease just being assigned to someone new?
I want to sell my lease to this new chap (that too on the cheap), but need to know where I stand as my landlord will be looking to cash in.
I was hoping dilapidation only applied when a lease came to an end for whatever reason, rather than an existing lease just being assigned to someone new?
Dav_s said:
He definitely can’t force me to surrender my lease - I’ve held up my side of the deal for the last 8 years and given him no issues. It needs to be a mutual agreement.
I want to sell my lease to this new chap (that too on the cheap), but need to know where I stand as my landlord will be looking to cash in.
I was hoping dilapidation only applied when a lease came to an end for whatever reason, rather than an existing lease just being assigned to someone new?
If the new tenant is happy to take an assignment of your lease, and there are no legal requirements in the lease (quality of the tenant etc) that the landlord has to approve, he can’t get in the way.I want to sell my lease to this new chap (that too on the cheap), but need to know where I stand as my landlord will be looking to cash in.
I was hoping dilapidation only applied when a lease came to an end for whatever reason, rather than an existing lease just being assigned to someone new?
If he refuses to allow you to do so you need legal and/ or landlord and tenant surveyor advice.
loafer123 said:
If the new tenant is happy to take an assignment of your lease, and there are no legal requirements in the lease (quality of the tenant etc) that the landlord has to approve, he can’t get in the way.
If he refuses to allow you to do so you need legal and/ or landlord and tenant surveyor advice.
This is correct. If he refuses to allow you to do so you need legal and/ or landlord and tenant surveyor advice.
Your lease will almost certainly contain various clauses relating to the ability of the current lessee to assign the lease. In most commercial leases drafted within the Landlord & Tenant Act 1954 the landlord generally has to grant consent to an assignment, provided that the proposed assignee is of a reasonable covenant strength (ie that they can afford to pay the rent). The landlord has to act reasonably and in a timely fashion.
When the lease is assigned the incoming tenant will take on the liability for dilapidations.
The landlord cannot force you to surrender the lease but that could be done by negotiation.
In theory the landlord could serve a notice upon you highlighting any current issues that need rectification (an interim schedule of dilapidations) but this is pretty rare and it’s harder for an interim schedule to be enforced than a terminal schedule which is served upon expiry of the lease.
The one advantage to you of a surrender and the grant of a new lease to the incoming tenant would be that you would be released from all future liability here, whereas if you assign the lease you will still be standing as a guarantor under an Authorised Guarantee Agreement. Most leases will provide that the tenant has to enter into an AGA upon assignment.
You will need to use a solicitor to deal with the sale of the business and assignment of the lease anyway, so you might as well get some advice on this now up front. Find a solicitor experienced at dealing with commercial leases.
An surrender and regrant does have some advantages for you, the landlord - and in your business probably the new tenant.
The incoming tenant would be wise to consider dilapidations. As you would be ending the lease early by agreement (and encouragement) with your landlord it would be wise to make sure the agreement covers it off - hopefully just confirming that nothing will be claimed or paid.
Dilapidations are in any case limited by statute to the loss of the landlords capital value. If the incoming tenant is coming in on the same terms, his loss is nil, and certainly if you have improved the value with your changes it makes it tough unless there are formal licenses calling for reinstatement. Potentially I suppose there might be the cost of a couple of coats of paint if you have not redecorated recently.
The incoming tenant would be wise to consider dilapidations. As you would be ending the lease early by agreement (and encouragement) with your landlord it would be wise to make sure the agreement covers it off - hopefully just confirming that nothing will be claimed or paid.
Dilapidations are in any case limited by statute to the loss of the landlords capital value. If the incoming tenant is coming in on the same terms, his loss is nil, and certainly if you have improved the value with your changes it makes it tough unless there are formal licenses calling for reinstatement. Potentially I suppose there might be the cost of a couple of coats of paint if you have not redecorated recently.
Dilapidations are normally to a "satisfactory" condition for reletting. In reality this means the LL can pretty much have you do whatever they want or complete works and bill you for it. Industry desperately needs regulating. I was beaten over the head with this irregular stick and only got out of it by finding holes in the rest id the contract.
In my case I wasn't signed out of the 54 act which was a noob error on the part of the LL. Excellent leverage as a tenant if you aren't signed out worth looking at.
Best thing I ever did was buying my premises and cutting loose from all this. Good luck.
In my case I wasn't signed out of the 54 act which was a noob error on the part of the LL. Excellent leverage as a tenant if you aren't signed out worth looking at.
Best thing I ever did was buying my premises and cutting loose from all this. Good luck.
fridaypassion said:
Dilapidations are normally to a "satisfactory" condition for reletting. In reality this means the LL can pretty much have you do whatever they want or complete works and bill you for it. Industry desperately needs regulating. I was beaten over the head with this irregular stick and only got out of it by finding holes in the rest id the contract.
In my case I wasn't signed out of the 54 act which was a noob error on the part of the LL. Excellent leverage as a tenant if you aren't signed out worth looking at.
Best thing I ever did was buying my premises and cutting loose from all this. Good luck.
Really it means you need a good surveyor acting for you. The cheapest solution in my experience is almost always doing the work and controlling the costsIn my case I wasn't signed out of the 54 act which was a noob error on the part of the LL. Excellent leverage as a tenant if you aren't signed out worth looking at.
Best thing I ever did was buying my premises and cutting loose from all this. Good luck.
Thank you for all your replies.
Here’s a quick update for you...
I spoke with my landlord today and told him I’m not going to surrender my lease in order for this new chap to then take a new lease, but instead I have potentially lined up someone else to buy my existing lease off of me. He said that’s fine, but I’d still be liable for the dilapidation costs (he estimated £6k originally!). I was a little taken aback and asked what these costs are for as the interior of the shop is in very good condition....
...he says the shop front and shutters were split in to two separate doors and shutters by the guy I purchased my lease off 9 years ago, and that must be put back to its original layout BY ME before I sell the lease on (his estimated cost £3k).
WTF?! I don’t even know how to try and explain his logic. He is holding a £5k deposit of mine. He’s clearly (IMO) just trying his best to not give it all back to me.
Here’s a quick update for you...
I spoke with my landlord today and told him I’m not going to surrender my lease in order for this new chap to then take a new lease, but instead I have potentially lined up someone else to buy my existing lease off of me. He said that’s fine, but I’d still be liable for the dilapidation costs (he estimated £6k originally!). I was a little taken aback and asked what these costs are for as the interior of the shop is in very good condition....
...he says the shop front and shutters were split in to two separate doors and shutters by the guy I purchased my lease off 9 years ago, and that must be put back to its original layout BY ME before I sell the lease on (his estimated cost £3k).
WTF?! I don’t even know how to try and explain his logic. He is holding a £5k deposit of mine. He’s clearly (IMO) just trying his best to not give it all back to me.
Dav_s said:
Thank you for all your replies.
Here’s a quick update for you...
I spoke with my landlord today and told him I’m not going to surrender my lease in order for this new chap to then take a new lease, but instead I have potentially lined up someone else to buy my existing lease off of me. He said that’s fine, but I’d still be liable for the dilapidation costs (he estimated £6k originally!). I was a little taken aback and asked what these costs are for as the interior of the shop is in very good condition....
...he says the shop front and shutters were split in to two separate doors and shutters by the guy I purchased my lease off 9 years ago, and that must be put back to its original layout BY ME before I sell the lease on (his estimated cost £3k).
WTF?! I don’t even know how to try and explain his logic. He is holding a £5k deposit of mine. He’s clearly (IMO) just trying his best to not give it all back to me.
He is wrong. If the proposed assignee (‘new chap’) is a solid covenant (ie for example can provide decent references, is a homeowner etc) then the landlord cannot reasonably withhold consent to an assignment of the lease. Here’s a quick update for you...
I spoke with my landlord today and told him I’m not going to surrender my lease in order for this new chap to then take a new lease, but instead I have potentially lined up someone else to buy my existing lease off of me. He said that’s fine, but I’d still be liable for the dilapidation costs (he estimated £6k originally!). I was a little taken aback and asked what these costs are for as the interior of the shop is in very good condition....
...he says the shop front and shutters were split in to two separate doors and shutters by the guy I purchased my lease off 9 years ago, and that must be put back to its original layout BY ME before I sell the lease on (his estimated cost £3k).
WTF?! I don’t even know how to try and explain his logic. He is holding a £5k deposit of mine. He’s clearly (IMO) just trying his best to not give it all back to me.
The assignee will take on your existing liabilities under the lease - including the requirement to bring the property into good condition upon expiry of the lease (or reinstatement etc depending on the circumstances).
The landlord may require the incoming lessee to provide a deposit but must return yours if you are up-to-date with your rent, insurance and service charges etc.
As I said before though, if you do assign the lease then you will effectively be acting as guarantor for the incoming tenant until the expiry of the lease (or until he further assigns the lease).
I could assist you further - but then I’d have to start charging!
My advice is to get a decent solicitor on the case pronto!
surveyor said:
An surrender and regrant does have some advantages for you, the landlord - and in your business probably the new tenant.
The incoming tenant would be wise to consider dilapidations. As you would be ending the lease early by agreement (and encouragement) with your landlord it would be wise to make sure the agreement covers it off - hopefully just confirming that nothing will be claimed or paid.
Dilapidations are in any case limited by statute to the loss of the landlords capital value. If the incoming tenant is coming in on the same terms, his loss is nil, and certainly if you have improved the value with your changes it makes it tough unless there are formal licenses calling for reinstatement. Potentially I suppose there might be the cost of a couple of coats of paint if you have not redecorated recently.
To amplify the above, if you do decide to surrender and re-grant then make sure there is a formal agreement - usually a Deed of Surrender. This should be written so as to cap off your liabilities in full.The incoming tenant would be wise to consider dilapidations. As you would be ending the lease early by agreement (and encouragement) with your landlord it would be wise to make sure the agreement covers it off - hopefully just confirming that nothing will be claimed or paid.
Dilapidations are in any case limited by statute to the loss of the landlords capital value. If the incoming tenant is coming in on the same terms, his loss is nil, and certainly if you have improved the value with your changes it makes it tough unless there are formal licenses calling for reinstatement. Potentially I suppose there might be the cost of a couple of coats of paint if you have not redecorated recently.
Dav_s said:
Thank you for all your replies.
Here’s a quick update for you...
I spoke with my landlord today and told him I’m not going to surrender my lease in order for this new chap to then take a new lease, but instead I have potentially lined up someone else to buy my existing lease off of me. He said that’s fine, but I’d still be liable for the dilapidation costs (he estimated £6k originally!). I was a little taken aback and asked what these costs are for as the interior of the shop is in very good condition....
...he says the shop front and shutters were split in to two separate doors and shutters by the guy I purchased my lease off 9 years ago, and that must be put back to its original layout BY ME before I sell the lease on (his estimated cost £3k).
WTF?! I don’t even know how to try and explain his logic. He is holding a £5k deposit of mine. He’s clearly (IMO) just trying his best to not give it all back to me.
So, perhaps the LL can explain why he didn't get interim dilaps from your predecessor? Or perhaps he did....Here’s a quick update for you...
I spoke with my landlord today and told him I’m not going to surrender my lease in order for this new chap to then take a new lease, but instead I have potentially lined up someone else to buy my existing lease off of me. He said that’s fine, but I’d still be liable for the dilapidation costs (he estimated £6k originally!). I was a little taken aback and asked what these costs are for as the interior of the shop is in very good condition....
...he says the shop front and shutters were split in to two separate doors and shutters by the guy I purchased my lease off 9 years ago, and that must be put back to its original layout BY ME before I sell the lease on (his estimated cost £3k).
WTF?! I don’t even know how to try and explain his logic. He is holding a £5k deposit of mine. He’s clearly (IMO) just trying his best to not give it all back to me.
The devil will be in the detail, but - subject to getting paid advice, and further subject to the lease wording - I'd be thinking in terms of asking the LL for the schedule of condition upon which he's relying.
Practically speaking, if you get into a dispute with the LL over all of this, you could easily spend that £3k and more on advice, letters, agreements, etc. Worth considering.
Do you want to sell the lease because you'll get some money for it? If so, perhaps - if the other party is agreeable - consider contracting to surrender your lease in return for (a) a payment and (b) the grant of a new lease by the landlord? You might have to chip in the £3k (or a portion of it) just to "grease the wheels" but you might conclude you'd be better off with that outcome.
Hello all
Quick update seeing as so many of your were kind enough to offer me your opinions and advice.
Given the present climate, and the fact I want out of the lease ASAP, I’ve agreed a dilapidation figure with my landlord that he will deduct from my deposit on surrender of my lease.
The new leaseholder will pay me a sum of money to takeover/get a new lease. Not a massive amount but will do.
It’s an ok outcome. I’ve learnt that landlords can be difficult, but then it’s a case of weighing up just how badly and how quickly you want to end/escape your lease.
Thanks for all your advice
Quick update seeing as so many of your were kind enough to offer me your opinions and advice.
Given the present climate, and the fact I want out of the lease ASAP, I’ve agreed a dilapidation figure with my landlord that he will deduct from my deposit on surrender of my lease.
The new leaseholder will pay me a sum of money to takeover/get a new lease. Not a massive amount but will do.
It’s an ok outcome. I’ve learnt that landlords can be difficult, but then it’s a case of weighing up just how badly and how quickly you want to end/escape your lease.
Thanks for all your advice
Edited by Dav_s on Saturday 30th May 11:23
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