Dilapidations: enhancing the performance of the client's asset
Gracechurch Street, London, WC2
- Acting for the landlord on a City core office building of 15.000 sq ft on a single floor
- Expiry of a 10 year lease with full tenant dilapidations obligations
- Prospect of repurposing / recycling tenant's fittings
- The floor was fitted out by the tenant to a good quality finish in 2013
What We Did
Assess the options for the client:
- Landlord refurbish floor – expensive. Our City agency team’s view was that this may enhance value, but the cost benefit was not clear
- Tenant reinstate floor – ie tenant complies with obligations and executes the work. But end product not likely to suit general requirements in the market, so risk of long void letting period and any value in the tenant’s fit out is removed.
- Tenant pays the landlord the reinstatement cost and fit out remains in situ – least risk carried by the landlord here, so clients preferred option
Negotiations with the tenant’s advisor over several months involved full blown reinstatement discussions including contentious ceiling replacement issues and a case for the base build luminaires (light boxes no longer in stock) to be replaced.
We negotiated a costed scope of works for full reinstatement, to include replacement of lights to new LED’s
At this stage we engineered the option of a cash settlement; ie the tenant was encouraged to relinquish carrying out the works on payment of the costed sum. (Advantage – freeing up the landlord’s position to initiate le-letting plans for the space without unwanted interference from the tenant, or compromise to the dilapidations outcome).
The Outcome
- Cost of the scoped works agreed at £20.50 per sq ft
- Substantial cash settlement received by the landlord
- Terms agreed by agency team within three months for a reletting of the floor “as is” (with cash contribution for new LED’s)
- Leaving a surplus of funds for client of in excess of £250,000, for our client to reinvest elsewhere in the building and meeting the clients ‘green credentials’ – i.e. recycling the tenants fittings, so no unnecessary strip out