1. Why budgeting matters
Dilapidations claims often come as a shock. Tenants who haven’t thought about lease-end costs suddenly receive a schedule claiming tens or hundreds of thousands of pounds. Budgets are blown, cash flow is disrupted, and decisions are made under pressure.
Proper budgeting prevents this:
Financial provisioning — Under accounting standards like FRS 102, businesses must recognise provisions for liabilities they’re committed to. Dilapidations liability exists from lease commencement and accrues over the term.
Cash flow planning — Knowing when and how much you’ll need to pay allows proper treasury management.
Property decisions — Understanding exit costs informs decisions about renewal, relocation, or exercising break clauses.
Negotiating position — If you’ve budgeted realistically, you won’t be panicked into accepting an inflated claim.
2. The variables that affect your liability
Dilapidations costs vary enormously. A small office might face a £15,000 claim; a large industrial unit could be £500,000+. Key variables include:
Property size and type
Larger properties mean more items and higher costs. Industrial buildings may have significant roof and yard liabilities. Offices often have substantial fit-out reinstatement. Retail may have shopfront and signage obligations.
Lease obligations
What does your lease actually require? Full repairing and insuring (FRI) leases impose maximum liability. Internal repairing only (IRI) leases exclude structure and exterior. The presence of a Schedule of Condition can limit liability to recorded condition.
Property age and condition
Older buildings in poor condition create larger liabilities. If the roof was already tired when you took the lease (and there’s no Schedule of Condition), that’s potentially your problem.
Alterations made
Have you installed partitions, mezzanines, fit-out, signage? Reinstatement obligations can be substantial — sometimes exceeding repair and decoration costs.
How long you’ve occupied
Longer occupation generally means more deterioration during your term, and (for decoration) more cycles of redecoration potentially due.
Landlord’s approach
Some landlords claim aggressively; others are more measured. Institutional landlords often have systematic processes that produce comprehensive (sometimes inflated) schedules.
3. Rules of thumb (use with caution)
Industry rules of thumb exist, but treat them as starting points only:
£7.5-15 per square foot is often cited as a rough range for dilapidations on standard commercial property. But this varies enormously:
- Simple warehouse with no alterations: lower end
- Heavily fitted-out office with full reinstatement: higher end or beyond
- Property with major repair issues: can exceed any rule of thumb
2-3 years’ rent is another rough proxy sometimes used, but has little technical basis.
The danger of rules of thumb: They’re averages that may not reflect your specific situation. A property with a failing roof, extensive alterations, and aggressive landlord could be multiples of any rule of thumb. A property with a Schedule of Condition limiting liability might be a fraction.
Rules of thumb are not budgets. They’re conversation starters at best.
4. The right approach: get an assessment
The only reliable way to budget for dilapidations is to have a professional assessment of your specific property against your specific lease obligations.
A Dilapidations Assessment (also called a Dilapidations Liability Assessment or Budget Cost Assessment) involves:
Lease review — Understanding exactly what you’re obligated to do: repair requirements, decoration cycles, reinstatement obligations, any Schedule of Condition that limits liability.
Property inspection — Assessing current condition against those obligations. What repairs are needed? What decoration? What alterations require reinstating?
Cost estimation — Pricing the items likely to appear in a terminal schedule. Not just what’s wrong now, but what will be wrong at lease end given expected deterioration.
Report — A written assessment with budget figures for provisioning purposes.
This gives you a realistic, evidence-based figure to work with — not a guess.
5. When to do an assessment
Ideal timing: 2-5 years before lease expiry
This is the sweet spot. Far enough out to allow planning and action, close enough that the assessment is reasonably accurate.
At portfolio review
If you occupy multiple properties, assessing them together gives you a complete picture of lease-end exposure across the portfolio.
Before committing to renewal
If you’re deciding between renewal and relocation, you need to know your exit costs. A renewal decision that ignores dilapidations isn’t fully informed.
When considering a break clause
Break clauses often require compliance with lease conditions. Understanding your position before deciding whether to break is essential.
For FRS 102 compliance
If you have financial reporting obligations, an assessment supports proper provisioning. Understanding your likely lease end liability can provide tax savings through FRS 102.
6. What affects the eventual outcome
Your budget figure isn’t necessarily what you’ll pay. The eventual settlement depends on:
Negotiation — Most claims settle below the initial schedule figure. Skilled negotiation typically achieves significant reductions.
Defences — Schedule of Condition, supersession, Section 18, betterment — these can substantially reduce liability.
Landlord’s actual intentions — If they’re redeveloping, supersession may apply.
Whether you do works — Carrying out some works yourself (particularly decorations) may be cheaper than paying compensation.
Budget conservatively, but understand that your eventual cost may be lower than the assessment figure — provided you handle the claim properly.
7. Common budgeting mistakes
Ignoring it until the claim arrives
By then it’s too late to budget — you’re reacting, not planning.
Using rules of thumb without validation
Generic figures may be wildly wrong for your specific property.
Assuming the landlord’s claim is the budget
Landlords’ schedules are opening positions, not final figures. Don’t provision at claimed amounts without professional review.
Forgetting professional fees
Budget for surveyor and (potentially) legal fees alongside the settlement figure.
Not reviewing annually
Circumstances change. An assessment done three years ago may need updating.
8. Using the budget strategically
Once you have a realistic budget figure:
Provision appropriately — Set aside funds or recognise the liability in accounts.
Consider proactive works — Some items are cheaper to address during the lease than as part of a settlement. Your assessment can identify these.
Factor into property decisions — Exit costs affect renewal vs relocation calculations.
Prepare for negotiation — When the claim arrives, you already understand your position. You’re not reacting blindly to the landlord’s figures.
Key Takeaways
- Don’t guess — rules of thumb are unreliable for specific properties
- Get a professional assessment — the only reliable way to budget
- Time it right — 2-5 years before lease expiry is ideal
- Budget conservatively — but know that negotiation usually reduces the eventual cost
- Review annually — circumstances and conditions change
- Use it strategically — for provisioning, property decisions, and claim preparation
Need Help?
If your lease is ending in the next few years and you need to budget for dilapidations, we can help. A Dilapidations Assessment gives you the figures you need for proper financial planning — before your landlord tells you what they think you owe.
Related Services:
- Dilapidations Assessments — Professional budget assessment
- Dilapidations for Tenants — When the claim arrives
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