Who Pays at the End of a Commercial Lease?

28 July, 2026 4 minutes reading time

What Landlords and Tenants Need to Know About Dilapidations and Section 18

When a commercial lease ends, both landlords and tenants usually focus on the move itself. Tenants prepare to hand over the keys, while landlords look for new occupants. However, one major area often catches both parties off guard: dilapidations.

Dilapidations are the costs of restoring a commercial property back to its required condition at the end of a tenancy. Whether you own the building or lease it, understanding end-of-lease liabilities early can save you significant time, stress, and money.

Landlords: Protecting Your Property’s Value

For landlords, dilapidations claims protect the physical and financial value of your asset. If a tenant leaves a property in disrepair or makes unapproved alterations, you may struggle to re-let or sell the property at market value.

Key Points for Landlords:

• The Schedule of Condition: Before signing a lease, ensure you record the property’s exact condition. Clear photos and written descriptions provide a solid baseline to prove what changed during the tenancy.

• Serving a Schedule of Dilapidations: Toward the end of the lease, your surveyor can inspect the property and issue a formal list of required repairs, decorations, or reinstatements.

• Section 18 Valuation (The Financial Cap): Under Section 18(1) of the Landlord and Tenant Act 1927, your claim for disrepair cannot exceed the amount by which the disrepair actually reduces the property’s market value. If you plan to demolish or substantially redevelop the building after the tenant leaves, your claim could drop to zero.

Landlord Tip: Plan early. Assessing dilapidations months before the lease ends gives the tenant time to carry out repairs themselves, avoiding costly legal or surveyor disputes after they move out.

Tenants: Managing Your Exit Expenses

For commercial tenants, dilapidations claims can feel like an unexpected exit bill. Many tenants assume that normal ‘wear and tear’ is acceptable. Still, commercial leases usually require you to leave the property in a specified condition, regardless of how it looked when you moved in.

Key Safeguards for Tenants:

• Limiting Liability at the Start: Never sign a ‘full repairing and insuring’ (FRI) lease without reading the fine print. Ask your legal team to attach a professional Schedule of Condition to the lease. This limits your repair obligations, so you only have to return the space in the condition you received it.

• Reviewing Alterations Clauses: If you installed partition walls, extra lighting, or specialised equipment, check if the lease requires you to remove them. Reinstatement costs add up quickly.

• Using Section 18 as a Defence: If a landlord demands £50,000 for repairs, but those defects only reduce the property’s overall market value by £10,000, Section 18 caps their claim at £10,000. This statutory limit stops landlords from claiming for repairs that do not genuinely affect the property’s value.

Tenant Tip: Do not wait until your last month to review your lease obligations. Gathering quotes and making repairs yourself is almost always cheaper than paying the landlord’s contractor after you move out.

Example: Section 18 in Action

To see how Section 18 works in practice, consider a typical commercial lease dispute:

The Scenario

A retail tenant reached the end of a 10-year lease on a town-centre shop. The landlord served a schedule of dilapidations demanding £120,000 to repair the roof, repoint the brickwork, and fully redecorate the interior.

The Challenge

The tenant acknowledged that the shop needed repairs. However, the town centre was undergoing major regeneration, and the landlord actually planned to convert the entire building into residential flats six months later.

The Section 18 Valuation

The tenant commissioned a Section 18 Valuation. The valuation surveyor established two key points:

1. Future Redevelopment: Because the landlord intended to strip the interior to build flats, redecorating the retail space added zero value to the building’s future state.

2. Impact on Market Value: The actual structural repairs (roof and brickwork) only reduced the overall market value of the building by £40,000.

The Outcome

Because Section 18 caps claims at the actual loss in property value, the landlord could not enforce the original £120,000 demand. The final settlement was capped at £40,000—saving the tenant £80,000 in unnecessary repair costs.

Our Advice

End-of-lease liabilities do not have to result in a costly legal dispute. With a clear Schedule of Condition at the start and realistic valuations at the end, both landlords and tenants can manage the transition smoothly.

Because every commercial lease is unique, generic advice will only take you so far. If you are negotiating a new lease, approaching a break clause, or facing an end-of-lease claim, seek specialist legal advice. If you would like to discuss your specific situation with a member of our property team, please don’t hesitate to contact us. We’re here to help.

Please note that all views, comments or opinions expressed are for information only and do not constitute and should not be interpreted as being comprehensive or as giving legal advice. No one should seek to rely or act upon, or refrain from acting upon, the views, comments or opinions expressed herein without first obtaining specialist, professional or independent advice. While every effort has been made to ensure accuracy, Curtis Parkinson cannot be held liable for any errors, omissions or inaccuracies.

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