Case Study: Martin Close

Do you have upcoming terminal lease negotiations, a disengaged tenant or just simply, limited budgets and experience in being able to deliver a programme of repair or refurbishment works? We can help.

The management of commercial property dilapidations at the end of a lease involves meticulous planning, communication, and adherence to legal obligations. But all too often, control doesn’t rest with the owner, and what should be a straight forward handover, becomes a messy and extremely costly experience.

If care has not been taken at the outset to specify the state of the premises at both the commencement and the anticipated end of the lease, the opportunity to hold the tenant to account could be lost. Frequent, or at least annual, inspections with photographic evidence, clear communication with the tenant, and audits to ensure maintenance work has been undertaken to the level which is acceptable to both parties need to be managed throughout.

But if that simply hasn’t been enforced or managed and the end of the lease date is looming, what do you do?

One option is, of course, to sell.

With limited capacity to invest at-risk and legally contest a tenant who was unwilling to ‘make good’, and with a requirement for a capital receipt, the owner of Unit 4 Martin Close in Bulwell, was left with very few options.

Having carefully assessed the dilapidations claims against a departing tenant, Rotherhill Developments, bought the 2.7 acre site in October 2020, inheriting the claim as part of the acquisition. On purchasing the premises, the site was immediately leased back to the seller who had a short term storage requirement.

Upon receiving vacant possession, Rotherhill carried out the necessary dilapidations repairs and remedial works on the 40,692 square foot building. This crystallised the loss and underwrote the dilapidations claim. The works were carried out in tandem with litigation proceedings as the previous tenant was not fully engaging with the dilapidations process.

During the lease-back period, Rotherhill also secured a new tenant, Encon Insultation Limited, on a new unbroken 20 year lease. This new lease was conditional upon the dilapidations works being completed, together with additional bespoke alterations. The completed works created a fit-for-purpose building that was now future-proofed. This was demonstrated by the total works package positively impacting the EPC rating, taking it from a low ‘C’ to a high ‘B’.

In November 2021, just over a year later, the investment was sold to a pension fund under the management of Aberdeen.

If you would like to talk through your own situation or requirements, we are happy to offer some straight-talking advice, get in touch.