Updated: 2nd October 2021
Dilapidations are a complex and contentious area of property law, and can result in hefty liability for business owners. If you’ve received a dilapidations bill that your company cannot afford, the commercial lease should have set out your maintenance and repair obligations for the tenancy.
A schedule of dilapidations could include inexpensive minor repairs, but also significant structural repair and maintenance. Heating, plumbing, and electrical issues can arise during the course of a tenancy, but the premise is that when the lease ends, the property will be returned to the landlord in good condition.
An insidious aspect of dilapidations is that you could become liable for issues already identified if the previous tenant didn’t carry out the necessary repairs. These should be reported within the lease as existing prior to the start of your business’ occupation of the property.
It’s highly advisable to professionally survey the property prior to taking on a commercial lease, to gain insight into potential future liability. But what can you do if the landlord has issued a large dilapidations bill after the lease has ended?
It’s important to take professional advice and instruct your own choice of surveyor to assess the property, and the dilapidations bill that’s been issued by the landlord. It may be possible for the surveyor to negotiate the final bill down.
The landlord is unlikely to have sought a range of cost options, and it may be possible for the costs stated in the bill to be reduced whilst still using professional tradespeople to complete the work to the required standard.
If you believe the dilapidations bill is unaffordable for your company – perhaps it’s experiencing financial distress, or the bill is so onerous that it’s threatening the existence of the business – you should seek licensed insolvency help at an early stage.
If, after receiving the relevant professional advice and taking any recommended actions, the bill remains unaffordable, you may be able to cover the costs via alternative funding, whilst also future-proofing your cash flow.
Alternative finance, such as factoring and invoice discounting, provides a flexible source of cash inputs to help your business deal with regular and unexpected issues going forward. Real Business Rescue has contacts with alternative lenders throughout the UK, and can put you in touch with the most suitable financiers for your circumstances.
Company Voluntary Arrangement (CVA)
Company Voluntary Arrangements restructure your business debts so they become more affordable, and are useful solutions for companies with multiple unsecured creditors. If you’re eligible, a CVA would allow you to continue trading without risk of being forced into liquidation by the included creditors.
It may be possible to include the dilapidations bill within a CVA, so that you only pay a proportion of the amount being demanded by your landlord. CVAs are only suitable for companies deemed viable for the long-term, however, so this is a factor to take into consideration.
If your business is beyond rescue, voluntary liquidation may be the only option, so what does this involve?
Creditors’ Voluntary Liquidation (CVL)
CVL is an official liquidation process that results in the permanent closure of your company. If there is no hope of business rescue, this is a preferable option when compared with compulsory liquidation, as it can protect you from allegations of misconduct or wrongful trading.
By entering into Creditors’ Voluntary Liquidation you’re essentially protecting your creditors from further financial losses, and this is an important consideration for company directors. During the process the business’ assets are sold, and creditors repaid as high a dividend as possible.
You may also be able to claim redundancy pay as a director after entering CVL, which could help to pay for the process, or support your personal finances following the loss of your business.
If you’ve received a business dilapidations bill that your company cannot afford, Real Business Rescue can help. Our partner-led team offers free, same-day consultations, and can quickly provide the independent advice you need. Please get in touch with one of the team – we operate a network of offices nationwide.