Leasing premises for commercial use comes with all sorts of terms and conditions regarding the upkeep of the property and the state it must be returned to at the end of the lease. This can leave the tenant with an unknown figure when it comes to having to repair any damage caused during the lease and upholding the original terms that were signed at the beginning. This can leave businesses in precarious positions with regard to finances and potential penalties if the costs for these are not taken into account when doing annual financial returns.
The common term for this type of situation is dilapidations and there are a large number of commercial surveyors that have experience in completing dilapidations for companies that are in a commercial lease. The majority of the time these are undertaken at the end of a tenancy, after the landlord has sent through a large bill for works that need to be undertaken to return the property to the state it was in at the commencement of the lease. Often companies use dilapidations as a way to utilise a surveyor’s knowledge to save money off this bill and only pay what is required by law.
Over the past few years there has been changes in the way a company is allowed to report their annual finances and they are now allowed to accrue the cost of future dilapidations in these yearly accounts. This was originally brought in with the Financial Reporting Standard (FRS) 12, which has since been succeeded by FRS 102 for all financial year starting 1st January 2015, however the ability to accrue costs associated with dilapidations has remained.
With the ability to accrue costs it is important that this is factored in accurately, as misreporting could still leave your company short of the finances required at the end of your tenancy. It is therefore important then when making these assessments you work alongside an experienced surveyor that has experience of the FRS 102 requirements – even more so if your company leases multiple properties.
Benefits of using a Chartered Surveyor
A Chartered Surveyor has to go through extensive professional training to prove their ability before they become chartered by an organisation such as RICS (Royal Institute of Chartered Surveyors). Being a Chartered Building Surveyor shows a high level of professional competence that was demonstrated by a panel of other experienced professionals. In real terms this means that the Chartered Surveyor would be able to pick up on aspects of the lease or building that others may not, offering clear and concise information about both the standard of the property and any potential dilapidations claim.
A Chartered Surveyor would be able to help you in determining the costs that are likely to be incurred by any potential dilapidations claim through the use of their experience and professional knowledge. Any alterations made to the building, even if they may seem trivial or minor at the time can result in a hefty bill and it is for these changes in particular that using an experienced surveyor comes in handy.
If you lease a number of properties of a similar style, size and with similar contractual obligations then a surveyor would be able to apply some basic rules and observations to apply costing across your entire estate. This type of service is particularly useful to companies with a large number of leased properties and can be both a highly accurate form of providing future costs and much more affordable than multiple visits to different properties. Using an experienced chartered surveyor, especially practices that have assisted with the commercial lease aspects of FRS 102, is invaluable when it comes to reporting potential costs and avoiding a nasty surprise at the end of your lease.
Choosing a Surveyor
Once you have decided that using an experienced surveyor would be beneficial in calculating costs relating to potential dilapidations for your annual financial reports, you have to find a surveyor that you can work with. There are a number of ways to find out about surveyors and quite often a company will have one they use or know of firms that have been recommended to them by other business acquaintances or connections.
The most important aspect to consider when talking with a surveyor is their experience with calculating potential dilapidations costs for financial reporting, don’t be afraid to ask them for examples of how they have helped similar companies. Look out for RICS firms as this is generally seen as the gold standard within surveying. Ultimately you need to work with a company that you feel comfortable with and that has demonstrated their experience and capability within this sector.
Article provided by Bradley-Mason LLP, a nationwide Chartered Building Surveying Practice with vast experience in providing both dilapidations and costings in line with FRS 102.