What Every Accountant Should Know About Dilapidations

For many accountants, property is a line on the balance sheet: lease liability; a service charge cost.

However when a lease comes to an end, that line item can quickly turn into a significant and unexpected financial exposure. If you're an accountant working with occupier businesses, we break down what you should understand about tenant dilapidations.

What Are Commercial Dilapidations?

Commercial dilapidations refer to claims made by a landlord against a tenant for breaches of lease covenants relating to repair, reinstatement or decoration at lease end.

In simple terms, if a tenant has not complied with their repairing obligations, the landlord can serve a Schedule of Dilapidations setting out the alleged breaches and the cost of putting them right.

Those costs can be substantial.

Many tenants assume that if they have “looked after the building”, there will be little to worry about. In reality, lease wording, not intention, determines liability. Full repairing and insuring leases can place extensive obligations on tenants, sometimes requiring them to return the property in better condition than when they took it.

For accountants advising occupier clients, this represents a potential liability that should not be ignored until the final year of the term.

Why Commercial Dilapidations Matter Financially

From an accounting perspective, commercial dilapidations raise several important considerations:

• Provisioning for end-of-lease liabilities
• Impact on year-end accounts
• Cash flow forecasting
• Negotiating settlements versus undertaking works
• Effect on business valuations or disposals

A dilapidations claim can easily run into tens or hundreds of thousands of pounds. If left unchallenged, it may be paid without proper scrutiny. However, this doesn't need to be the case. If properly assessed and negotiated, dilapidations can often be reduced significantly - something we've helped countless businesses with.

Some recent successes for our clients’ include:

• A business in Marlow where we saved 78% against the landlord’s claim
• A business in Amersham where we saved 54% against the landlord’s claim
• A strategy for a property that took a claim of over £500,000 down to zero

It is essential to ensure that the claim reflects the tenant’s true legal liability and complies with statutory limitations, including Section 18 of the Landlord and Tenant Act 1927, which can cap damages where a property’s value is unaffected by disrepair.

For landlords, the position is equally important. A carefully prepared claim protects asset value and ensures compliance with the lease. Poorly documented claims can undermine recovery.

The Role of Professional Advice in Commercial Dilapidations

Commercial dilapidations are technical. They sit at the intersection of building pathology, lease interpretation and valuation principles.

That is where the advice of expert surveyors adds real value.

At Jaggard Macland we have departments that act for both landlords and tenants. That dual perspective is important. It means we understand how claims are constructed, where they are often overstated, and where liability genuinely sits.

One client, Andrew Hounsell, MD at County Financial in Beaconsfield, put it better than we could:

“Steven, thank you so much for your brilliant work … it has been such a weight off my shoulders to hand over the negotiations to you. Your expertise has been invaluable.”

For business owners and finance directors, that sense of relief is common. Once negotiations are handed to a specialist, the process becomes structured and evidence-based rather than emotive or adversarial.

When Should Accountants Raise Commercial Dilapidations With Clients?

Ideally, long before the lease expires.

The best outcomes are achieved when advice is sought:

• 18–24 months before lease expiry
• At lease renewal
• When considering a break option
• During acquisition or disposal planning
• When reviewing long-term liabilities

Early involvement allows tenants to consider interim works, negotiate exits, or budget properly. It also provides an opportunity to review historic documentation, such as a Schedule of Condition, which can significantly limit liability if correctly prepared at lease commencement.

For landlords, early preparation ensures a robust and defensible claim, supported by accurate costings.

A Practical, Commercial Approach

Commercial dilapidations should not be treated as a last-minute dispute. They are part of the lifecycle of a commercial lease. Handled properly, they become a managed financial process rather than a shock demand landing at year end.

For accountants, understanding the fundamentals means being able to ask the right questions:

• What repairing obligations does the lease contain?
• Has a Schedule of Condition limited liability?
• Has dilapidations provision been made in the accounts?
• When does the term expire?

Property liabilities are often underestimated. But they are predictable - and manageable - with the right advice.

If you advise clients with commercial leasehold premises and would like to discuss dilapidations advice, we would be pleased to talk through how we can support both landlords and tenants in protecting their position. We also offer a Dilapidations Budget and Strategy Report which can help to unlock savings.

Early advice makes a measurable difference.