Bella Stuart-Bourne goes through the key considerations on dilapidations for pharmacy tenants…

Thinking of relocating your pharmacy to another premises? Or simply wanting to understand your obligations to repair and decorate your pharmacy? Let’s take a look at it from a legal perspective.

What are dilapidations?

Leases contain obligations on the tenant regarding the physical condition of the property including alterations, reinstatement, redecoration and repair.  When there is disrepair in the property, in breach of the lease, this is referred to as “dilapidations”.

If a tenant leaves a premises in disrepair, the landlord may have a claim for damages for the dilapidations at the termination of the tenancy.  In addition, a landlord may enforce a covenant to repair during the term of the lease.

It is therefore important for pharmacy tenants to be aware of their repair obligations under their lease, both during the term and upon termination of their lease.

What are the obligations to repair?

An obligation to keep premises in repair or repair to the standard of a schedule of condition are usually included in commercial leases. If you have a lease of the premises in which the pharmacy is located, rather than the freehold of the whole building, you will be the tenant under a commercial lease.

You may wish to consider the terms of your lease so that you understand your rights and responsibilities.

The Dilapidations Protocol

A specific dilapidations pre-action protocol, within the Court rules, has been produced to encourage landlords and tenants to exchange information regarding terminal dilapidations and agree a settlement at the end of a tenant’s occupation, without the need for litigation.

An uncosted Schedule of Dilapidations may be served on the tenant before the end of the lease term; a Terminal Schedule of Dilapidations is produced once the lease has ended and includes costings.

The Protocol provides for the following:

• The landlord should send the tenant a schedule setting out what the landlord considers to be:

1. the breaches of the repair and reinstatement covenants in the lease;
2. the works required to be done to remedy those breaches; and, if relevant,
3. the landlord's costings.

• Terminal Schedules of Dilapidations should be sent within a reasonable time. This will generally be within 56 days after the termination of the tenancy.

As soon as you receive a Terminal Schedule of Dilapidations, it is advisable to instruct a surveyor, because you need to respond to the schedule within a reasonable time, which is also often 56 days.

Practical tips

Photographs

It is advisable that a comprehensive photographic schedule of condition of the premises is prepared:

• prior to / at the commencement of the lease; AND
• at the termination of the lease.

This can either be an informal set of photographs to be retained by the tenant, or a formal Schedule of Condition to be agreed/prepared in agreement with the landlord and appended to the lease. Issues can arise between a landlord and tenant where there is insufficient evidence as to the condition of the property at the commencement of the lease, and so it is sensible to ensure that sufficient evidence is retained.

Know your obligations!

If you are unsure as to what your obligations are under your lease, then obtain a copy of it and seek advice. There may be supplementary documents to your lease such as a Licence for Alterations or a Deed of Variation, so be sure to familiarise yourself with all the necessary documents detailing your obligations. There are some common obligations which are contained within most leases. They are often along the following lines:

• The tenant shall put and keep the property in good and substantial repair and condition.

Unless the standard of repair is limited by reference to a schedule of condition, such an obligation will require a tenant to put and keep the property in good repair and condition. Good maintenance during your tenancy will help minimise end-of-lease liabilities.

• In every fifth year of the term and in the last six months before the end of the term, in a proper and workmanlike manner, to prepare and paint with two coats of good quality paint all parts of the interior of the premises usually or requiring to be painted, and to treat other parts of the interior of the premises with suitable and appropriate materials.

You may, for example, have a cupboard in your pharmacy which is out of the public’s view. Although it may not be necessary for your business for that cupboard to be presentable, it would likely be considered a part of the interior which is usually painted. Therefore, you would be required to keep that cupboard decorated to the same standard as the shop area which is visible to the public.  It is important to appreciate the standard of repair which applies across the premises and not just to areas visible to the public.

• At the end of the term, unless otherwise required by the landlord, to remove from the premises all fixtures and fittings and other property belonging to the tenant or any third party.

This would involve removing shelving, cupboards and anything else with which you fitted out your pharmacy. Again, this is where a photographic schedule taken at lease-commencement may assist, to remind you of what was there at the start of your lease, and therefore what you need to remove.

Conclusion

It is advisable that pharmacy tenants remain mindful of their legal obligations throughout their tenancy, as claims for damages for dilapidations can be substantial.

It is important to seek advice upon receipt of a Schedule of Dilapidations.  If the landlord serves a Terminal Schedule of Dilapidations before the expiry of the lease term, the tenant has the option of undertaking the works (some or all of them) themselves before the end of the term. Alternatively, the tenant may wish to instruct a surveyor to negotiate a settlement.  A landlord’s damages are capped by statute to the amount that the landlord’s interest in the property is diminished as a result of the tenant’s breaches.

Many landlords and tenants reach agreement on the tenant’s liability for dilapidations before court proceedings are commenced.  It is therefore advisable that tenants consider negotiating the schedule with their landlord after seeking advice, with a view to avoiding incurring costs in relation to litigation.

The above is a general overview and we recommend that independent legal advice is sought for your specific concerns.  If you require further information in relation to the points raised in this article, contact Bella Stuart-Bourne, who is an associate and member of the real estate disputes team at Charles Russell Speechlys LLP.  She can be contacted at bella.stuart-bourne@crsblaw.com