Defined as a snapshot of the state of a property at a specific time, to serve a specific legal purpose, there are many reasons why this should be more than just an afterthought for both landlords and occupiers. A tenant’s dilapidations liability at lease expiry can be high, potentially disproportionate to the rental exposure, meaning anything that can help reduce these costs is a worthwhile exercise.

The value of a good SoC

Not all SoCs, however, are created equal. Attention to detail is key, so leaving it to the last minute can be detrimental. Instead, the aim should be to have clarity of position from day one of the tenancy. This is particularly important if it is, for example, a dilapidated building taken under a Full Repairing and Insuring (FRI) lease; previously fitted-out and partitioned offices; a large industrial property with extensive existing fit-out and wear, or a premises with aging mechanical & electrical (M&E) equipment that will be maintained by the tenant. In these instances, the failure to clarify, and subsequently cap liability, for high cost, or high volume, future works can leave an occupier exposed.

From a landlord perspective, it also offers protection of their asset in to the future. Given the current trend of Cat A+ fit-outs where landlords are investing in ‘ready to occupy’ space, it can ensure that it is handed back in a good state ready for the next occupier.

Common pitfalls

There are also many common pitfalls with the use and implementation of an SoC that can limit its effectiveness.

Firstly, unclear or insufficiently detailed written descriptions can easily provide confusion. This could mean the difference between a clear dilapidations discussion, or a protracted and costly negotiation.

Other things to consider include the lack of good quality photography. This can act as proof of condition, along with up to date plans of the premises, which are key to understanding how the building is configured at the start of a lease. Thorough coverage of M&E services is also important, particularly for an FRI lease of a premises for all the reasons mentioned above.

Human error always applies, with known instances of SoCs being lost before lease end. This, along with poorly implemented lease documents are also frequent mis-steps. Incorrectly worded and cross-referenced lease clauses often prevent an SoC from providing the full protection it’s designed to.

Last, but not least, the failure to identify and recommend practical adjustments as part of a letting deal that then impact an SoC can lead to significant problems. A tenant won’t be grateful for successfully negotiating to avoid responsibility for the deteriorated roof above their premises in their new lease - if the landlord in return isn’t explicitly required to look after it and fix the known roof leaks.

Ultimately, while it may not be the most glamorous, an SoC implemented correctly with good advisors can be the difference between peace of mind and a hefty dilapidations bill at lease expiry. It is, therefore, crucial to have the right advisors in place.

Further information

Contact Jamie Townsend

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