GN 10.2: Alterations and dilapidations
Guidance Note purpose
The purpose of this Guidance Note is to provide asset managers, property managers and facilities managers with information when considering sustainability as part of alterations and dilapidation.
Context
Leases contain clauses governing how occupier’s alterations are to be dealt with, including whether they require formal consent through a Licence to Alter. The relevant clauses will generally set out the process to follow, including what is, and what is not, permitted. This may include, for example, structural alterations, and who is liable for fees in connection with the process.
A Schedule of Dilapidation is generally prepared by a Chartered Building Surveyor and identifies; relevant lease obligations, alleged breaches of those obligations, proposed remedial works and the estimated associated cost in rectifying. They are typically prepared towards the end of a lease term and can result in a negotiated financial settlement or the occupier undertaking an agreed scope of repair and reinstatement works.
There are variations to the associated legal frameworks for alterations and dilapidations across the UK constituent countries.
While sustainability is considered in various ways during a property’s fit-out, there are opportunities to reference alterations and dilapidations as part of a lease, and to consider sustainability issues throughout the alterations process.
Importance
Failure to understand the lease clauses associated with alterations can lead to delays in the process, misunderstandings and negative impacts on the asset manager’s interest where, for example, alterations cannot be removed at the end of the lease. In multi-let properties, there can also be impacts on other occupiers, or common areas through, for example, changes to common heating, cooling and ventilation system.
It is also important to consider the potential effect of alterations on the sustainability performance of a property. This may include, for example, negative impacts on broader ratings and certifications achieved for a property.
The dilapidation position should be considered in advance of the lease termination date so that any reinstatement provisions and notices can be taken into account. Inspections may require specialist input and, where valuation evidence is required to support a claim, time will need to be allowed for this process. An initial review is often instigated 12-18 months prior to lease termination.
The dilapidation process also needs to take in to account the impact of any repair and reinstatement works on a property’s sustainability performance. For example, Energy Performance Certificate (EPC) ratings:
- The EPC obligations fall to the asset manager as part of re-letting the accommodation. There may be lease clauses that need consideration in this regard as well as potential arguments around diminution valuations if the EPC is made worse through the reinstatement process.
- Options around retaining elements of occupier fit-out rather than requiring reinstatement also needs to consider the impact of EPC’s, alongside the avoidance of waste by retaining elements of fit out where possible.
Responsibilities & Interests
The table below summarises the key activities associated with the license for alterations process, and highlights where asset managers, property managers and facilities managers are likely to have a responsibility or specific interest.
- AM - Asset Manager
- PM - Property Manager
- FM - Facilities Manager
1. The license for alterations process
Stakeholder:
2. The dilapidations process
Stakeholder:
How to
Related Guidance Notes
The following Guidance Notes contain related information:
- GN1.2: An environmental compliance register
- GN2.1: An asset register
- GN6.3: Site Waste Management Plans
- GN 6.4: Waste management opportunities
- GN6.5: Waste Management during Refurbishment &Fit-out
- GN10.1:The fit-out process
- GN11.1: Building User Guide