Distribution companies could save dilapidation costs as recession hits rents

Companies with leases ending soon could be in a much stronger position as a result of the current property market slowdown, according to Andy Melvin from distribution and warehousing property specialist sbh.

Dilapidation costs – the bill the occupier traditionally picks up to return the building to its original condition so that the landlord can re-let at a market rent – could, thanks to the recession, fall dramatically.

Andy explained: “The main purpose of the Schedule of Dilapidations is to ensure that the landlord can re-let the building at the market rate. However as market rates have come down landlords will struggle to justify heavy dilapidation costs that may have little or no effect on the far lower current and expected rental values.”

“ The maximum the landlord can claim is the loss of value to the property, which may be far less than the cost to remedy the dilapidations. If the market is so weak that the property cannot be let – even if the repairs are carried out in full – it will be hard for the landlord to quantify that loss. If the property cannot be let regardless of any remedial works, it makes it almost impossible to calculate the difference between the two scenarios – the building as it is or fully repaired – as the law requires”.

“However no landlord is going to see such a valuable source of revenue disappear without a fight and most occupiers will benefit from having a skilled and experienced negotiator on their side. sbh’s warehouse and industrial rent review and negotiation

Distribution companies could save..
team has saved clients such as Diageo, Argos, Debenhams, Toyota, Woolworths and Bibby more than £50m in rents since 2000, and is now working to make significant savings for clients from Dilapidations negotiations.”

November - 2008