Big Box Company's Dilapidation Exit Strategy: Hampshire Properties

This case study presents a dilapidation exit strategy for Big Box Company Limited, a tenant leasing a light industrial warehouse from Hampshire Properties Limited. The report identifies relevant clauses in the lease agreement pertaining to repairs, redecoration, and reinstatement obligations. It assesses the dilapidations claim issued by Hampshire Properties, detailing necessary redecoration, repair, and reinstatement works. The strategy focuses on reducing costs by identifying items not breached by the tenant and negotiating with the landlord. The report outlines specific works to be fixed by the tenant, providing cost estimates and highlighting the importance of specialized subcontractors to perform acceptable work in accordance with the lease agreement. Ultimately, the goal is to help Big Box Company understand and discharge its dilapidations liabilities effectively while minimizing expenses. Desklib is a platform where students can find similar solved assignments and study resources.

Dilapidation Exit Strategy 1
DILAPIDATION EXIT STRATEGY
Name
Course
Professor
University
City/state
Date

Dilapidation Exit Strategy 2
Table of Contents
1. Introduction.......................................................................................................................................3
2. Relevant clauses.................................................................................................................................5
3. Necessary redecoration, repair and reinstatement works..............................................................6
3.1. Repair work....................................................................................................................................6
3.2. Reinstatement or yield up work.....................................................................................................7
3.3. Redecoration work.........................................................................................................................8
3.4. Statutory compliance work............................................................................................................8
3.5. Summary of dilapidations claims..................................................................................................9
3.6. Works to be fixed by the tenant................................................................................................9
3.7. Items not breached..................................................................................................................11
4. Exit strategy advice.........................................................................................................................11
5. Conclusion........................................................................................................................................15
References................................................................................................................................................16

Dilapidation Exit Strategy 3
1. Introduction
Landlord: Hampshire Properties Limited
Tenant: Big Box Company Limited
Property type: Light industrial warehouse
Location: South East of England
Lease commencement date: 1 December 2014
Lease period: five years
Expected lease expiry date: July 2019
Preparation date: 23 January 2019.
Dilapidations are inevitable for commercial property lessees hence it is important to consider
them at the earliest stage possible – when negotiating a commercial property lease (Gilbert,
2017). Typically, commercial lease tenants have specific redecoration, repairing and
reinstatement agreements that they are supposed to comply with at the end of or during the lease.
The lease usually place different decoration, reinstatement and repairing obligations upon the
tenant (APS Chartered Surveyors Ltd, 2017). It is therefore the responsibility of the tenant to
involve specialists so as to develop an exit strategy that will reduce his dilapidations liabilities
and also provide a strategy of discharging his reasonable dilapidations liability.
This report presents a dilapidation exit strategy for Big Box Company Limited (tenant). The
company entered into a five-year lease agreement with Hampshire Properties Limited (landlord)
on 15 September 2014 and will expire on 1 September 2019. As the lease is about to expire,
Hampshire Properties Limited has already issued Big Box Company Limited with a dilapidations

Dilapidation Exit Strategy 4
claim. The main purpose of this report is to help Big Box Company understand the dilapidations
costs he is likely to be required to pay, strategies he can use to reduce these costs and the best
ways of discharging acceptable dilapidations liabilities.
The report has been prepared for the tenant of the premises following inspection of the
property that was done on 10 January 2019. It provides a record of works that the tenant should
do to the premises so that they can return to the condition stipulated in the lease agreement.
Figures 1, 2 and 3 below are some of the recent photographs of the premises
Figure 1: Front elevation

Dilapidation Exit Strategy 5
Figure 2: Internal warehouse
Figure 3: Roof of the warehouse
2. Relevant clauses
From the lease agreement between Hampshire Properties and Big Box Company, and the
schedule of dilapidations provided by Hampshire Properties, the relevant clauses to the
dilapidations claim are:
3.5 – repairs: Big Box Company was required to perform necessary repair works that
would keep the premises in good and safe conditions; maintain optimum cleanliness of the
premises and its surroundings; and collect and dispose waste as directed by the landlord.
3.6 – decoration: Big Box Company was required to decorate the inside and outside of
the premises in a tint or any other colour approved by the surveyor of the landlord as often as it
was deemed necessary.
3.12 – compliance with statutes: Big Box Company was required to comply with all the
statutes contained in the lease agreement with Hampshire Properties, including use of the
premises, payment of levies, claims demands, etc.

Dilapidation Exit Strategy 6
3.23 – yield up: Big Box Company was required that at the end of the leasing term, the
following should be accomplished: handover the vacant premises to Hampshire Properties in
conditions stipulated in the lease agreement documents; remove (when required by the landlord)
all fittings and fixtures that may have been installed by the tenant; restore any parts of the
premises that have been damaged when removing fixtures and fittings; and remove nameplates
and signs connecting Big Box Company with the premises.
3. Necessary redecoration, repair and reinstatement works
Having looked at the current internal and external photographs of the light industrial
warehouse property, the necessary work that Hampshire Properties has included in the schedule
of dilapidations are provided in Table 1 below. Various actions have also been proposed for each
work.
3.1. Repair work
The various repair works claimed by Hampshire Properties in the schedule of dilapidations are
provided in Table 1 below
Table 1: Repair work claims
Clause Work to be done
External
Generally
3.5 Clean all cladding panels to remove all debris and brickwork to remove staining.
Front elevation
3.5 Re-fix the main entrance door handle, replace the damaged handrail to the entrance
ramp, replace all damaged trim panels to the loading bay door, clean and treat roller
shutter door, replace damaged section of roller shutter door, and re-fix the loose trim.
Right hand elevation
3.5 Treat the leaking joints of downpipes, clean and treat fire extinguisher handrails, clean
all ironmongery, replace rotten parts of fire extinguisher door frame, replace damaged
cladding panel, clean the cladding panel, and replace damaged brick.
Rear elevation

Dilapidation Exit Strategy 7
3.5 Replace damaged bricks, clean the fire exit door’s face plate, replace damaged
cladding trim panels, replace missing cladding panels’ cover caps, replace missing
cladding trim panels’ screws, and re-fix loose cladding trim panel screws.
Internal
Generally
3.5 Clean and treat all cladding panels, ironmongery to doors and windows, and
suspended ceiling tiles.
Warehouse
3.5 Replace Hi-bay lighting fittings, remove and replace hold brickwork in front
elevation, replace damaged front elevation bracing, repair chamfered elevation purlin,
replace damaged right hand elevation bracing, replace damaged mortar to the right
hand blockwork, and replace damaged parts of rear elevation blockwork.
Ground floor office and lobby
Replace carpet floor covering, replace kitchen’s vinyl sheet floor covering, deep clean
kitchen base units, replace missing sink plug, and replace kitchen unit’s mastic
sealant.
Accessible WC
3.5 Replace vinyl sheet floor covering, replace damaged left hand elevation blockwork,
deep clean excavator fan, deep clean WC, deep clean wash hand basin and clean grab
rails.
Entrance lobby
3.5 Replace letter box cover and lighting fitting
First floor office
3.5 Replace all carpet floor covering and door frame and striker plate.
3.2. Reinstatement or yield up work
The various reinstatement or yield up works claimed by Hampshire Properties in the schedule of
dilapidations are provided in Table 2 below
Table 2: Reinstatement or yield up work claims
Clause Work to be done
Generally
3.23 Remove and dispose all chattels, speaker system, fire detection system, intruder alarm
system and fire extinguisher systems, and ensure that all retained surfaces are in good
condition.
Warehouse
3.23 Remove and dispose point of use water heater system, water hose system, smoke
beam system, and fixing clips system, and ensure that all retained surfaces are in good
condition.
Ground floor office

Dilapidation Exit Strategy 8
3.23 Remove and dispose notice boards and ensure that the retained surfaces are in good
condition.
Accessible WC
3.23 Remove and dispose key box and safe, and ensure that the retained surface is in good
condition.
First floor office
3.23 Remove and dispose notice boards and trucking, reinstate lighting to original layout,
and ensure that retained surfaces are in good condition.
3.3. Redecoration work
The various redecoration works claimed by Hampshire Properties in the schedule of
dilapidations are provided in Table 3 below
Table 3: Redecoration work claims
Clause Work to be done
Internal
3.6 Redecorate the following: all painted walls, all painted ceilings, all shadow
battens, all gloss painted windows, all gloss painted skirting, all gloss painted
architraves and door frames, all gloss painted doors, all painted steel work,
warehouse floor and its impact barrier.
External
3.6 Redecorate the following: painted steel handrails and bollards.
3.4. Statutory compliance work
The various statutory compliance works claimed by Hampshire Properties in the schedule of
dilapidations are provided in Table 4 below
Table 4: Statutory compliance work claims
Clause Work needed
3.12 Perform an electrical test to the whole premise and provide NICEIC certificate in
accordance with current requirements.
3.12 Perform emergency lighting test and provide the appropriate certificate.
3.12 Provide an up-to-date asbestos management certificate.

Dilapidation Exit Strategy 9
3.5. Summary of dilapidations claims
The summary of claims from the schedule of dilapidations served by Hampshire Properties is
provided in Table 5 below
Table 5: Summary of dilapidations claims
Claim Cost
Cost of works due to breach of lease agreement £30,990.00
Add 15% of contractor’s preliminaries, profit and overhead £4,650.00
Sub-total £35,640.00
Surveyor’s fee for determining works required due to lease agreement
breach
£5,350.00
CDM related fees £750.00
Surveyor’s fee for dilapidations schedule preparation £1,610.00
Surveyor’s fee for claim negotiation £1,250.00
Solicitor’s fee TBA
Rent loss TBA
Service charge loss TBA
20% VAT TBA
Provision total £44,600.00
Not all items that have been identified by the surveyor of the landlord are actually a breach of
lease agreement. That is why it is important for Big Box Company to hire specialists and
specialized subcontractors to evaluate the claims and perform acceptable work in accordance
with the lease agreement. If Big Box Company can perform the works claimed, the company will
pay a less amount compared to £35,640.00 to the sub-contractors. The company will also
negotiate with the landlord on all other proposed costs.
3.6. Works to be fixed by the tenant
Having looked at the schedule of dilapidations provided by the landlord, the following works
will be fixed by the tenant
Clause Work to be fixed Cost (£)

Dilapidation Exit Strategy 10
Repair
External
Generally
3.5 Clean all cladding panels to remove all debris 1,200
Right hand elevation
3.5 Treat the leaking joints of downpipes 350
Rear elevation
3.5 Replace missing cladding panels’ cover caps 290
3.5 Replace missing cladding trim panels’ screws 25
3.5 Replace damaged cladding panels 825
Internal
Generally
3.5 Clean and treat all cladding panel 1,357.50
3.5 Clean ironmongery to doors and windows 300
3.5 Clean suspended ceiling tiles 50
Warehouse
3.5 Replace all damaged cladding panels 900
3.5 Clean down warehouse floor to remove imperfection prior to decoration 2,550
Yield up
Generally
Remove and dispose all chattels, speaker system, 500
Remove speaker system 50
Remove fire detection system 350
Remove intruder alarm system 250
Remove fire extinguisher systems 50
Redecoration
Internal
Prepare and redecorate all emulsion painted walls 1,842.50
Prepare and redecorate all gloss painted skirting 400
Prepare and redecorate all painted steel work 6,275
Prepare and redecorate all warehouse floor 5,050
Compliance with statue
Perform an electrical test to the whole premise and provide NICEIC
certificate in accordance with current requirements.
450
Provide an up-to-date asbestos management certificate. 500
Total 23,565
This means that out of the total cost of works required to remedy the tenant’s breach of contract
as claimed by the landlord of £35,640.00, the landlord will only pay £12,075. The tenant can hire
specialized subcontractors to perform the claimed work. The cost will definitely be low
compared to paying the landlord the claimed amount.

Dilapidation Exit Strategy 11
3.7. Items not breached
As stated before, the tenant has not breached all the items included in the schedule of
dilapidations as provided by the landlord. All items where the landlord has asked the tenant to
replace any part or component of the premises are not a breach of the lease agreement. The
obligation of the tenant is to maintain the premises in good working condition. In this context,
maintenance does not mean replacing old items with new ones. Therefore the tenant can only
repair the broken or damaged components of the premises but not to replace them by buying and
installing new ones. Replacement is the responsibility of the landlord while maintenance is the
responsibility of the tenant. Therefore the tenant is going to make the landlord aware of the fact
that he is only responsible for maintaining or repairing but not replacing. This means that all
items that the landlord has asked the tenant to replace are not a breach of the lease agreement
hence will not be paid for. If the landlord agrees the tenant to repair the damaged items, he will
do so. Alternatively, the landlord can also discuss the matter with the tenant for the later to pay a
lower cost that is equivalent to the cost of repairing the items but not replacing them.
4. Exit strategy advice
 Big Box Company should negotiate with the landlord about the amount of service charge
loss to be paid. This is because service charges are meant to help the landlord recover any
expenses incurred in maintaining the property (University College of Estate
Management, 2016). Since the property has been leased to Big Box Company fully, it
only makes sense if the tenant discusses with the landlord about service charge.
 The ultimate obligation of the tenant to a landlord in a lease agreement is to return or
handover the premises to the landlord in conditions that were agreed upon in the lease
agreement (Royal Institute of Chartered Surveyors, 2016). The first action that Big Box

Dilapidation Exit Strategy 12
Company should take is to ask Hampshire Properties to provide a declaration of intention
stating the future use of the property. From the information provided so far, the landlord
is not certain about the building’s future intentions. But considering the current trend in
the region and information obtained from nearby sites show that most buildings have
been redeveloped into more modern light industrial units. There are high chances that the
landlord is also going to modernize this property when the current lease expires for it to
be more attractive to potential future tenants or investors. It is therefore important for
Hampshire Properties to ensure that the costs in the dilapidations claim are actual and
reasonable because even if he is paid the claimed dilapidations cost, he may not use this
money for reinstating the property to its original state. Instead, he will use the money to
redevelop the property into a more modern light industrial unit, which is not part of the
conditions in the lease agreement.
 A tenant must compensate the landlord if the former has breached any of the agreed
obligations in the lease agreement. However, the tenant has the right to hire a surveyor so
as to validate the dilapidation claim made by the landlord. After validating the claim, you
have two options as the tenant. The first option is to undertake the works specified in the
validated claim while the second option is to negotiate with the landlord and come to an
understanding on a financial settlement (Gilbert, 2012). Since the lease has not yet
expired, the financially advantageous option for Big Box Company is undertaking all or
some of the works in the claim. The tenant usually does not have any other option other
than negotiating for a financial settlement if the claim is made after lease end. In this
case, Hampshire Properties has made the claim several months before lease end. This