The Elephant in the Room
Firstly, let’s address the elephant in the room. A lot of building surveyors really aren’t very good at understanding leases. Even if they are, they can sometimes struggle to provide advice on the real-world implications and what this means to tenants. This often results in a lot of confusing advice that might have a big element of scaremongering. Or, the building surveyor might skirt the lease altogether. Instead insisting that they can only provide a condition survey on a leased property. None of which is particularly useful.
True, surveyors used to offer a traditional commercial building survey to a leaseholder client. This type of survey sets out in detail what a property is made of, and its condition, perhaps alongside some narrative of statutory requirements. However, a commercial building survey is normally geared toward someone purchasing a freehold or a very long property interest, and will frequently consider the whole life performance of a building. So it probably won’t be very useful to a business taking on a 5-year lease, with possible plans to renew for another 5 years before they likely outgrow the property.
So instead, at Harrison Clarke, we consider what information a leaseholder needs, rather than trying to adapt an old offering to suit them.
Why the Leaseholder Matters
To put it simply, a leaseholder wants to ensure that the space is suitable to their specific needs. As well as exposing them to as little financial risk as possible. That’s part of why we designed the leaseholder survey to be more economical than the traditional commercial building survey. But getting no advice, or the wrong advice, can be incredibly expensive, which is why a leaseholder survey should be seen as an investment into your future. It could even help you recover its cost many times over! Here’s why.
Before our surveyor visits the premises, they will ask you for a copy of the travelling lease. This is the draft version of the lease that ‘travels’ between solicitors while the final wording is hammered out, before it’s turned into the final version ready for signing. Which is before the leaseholder survey is issued. If the travelling lease isn’t available, it’s not the end of the world. But it does mean our advice can’t be quite so laser-focused. If this is the case, we’ll ask for a copy of the Heads of Terms. Which is a document that sets out the key lease provisions.
When the surveyor then visits the property, they’ll be looking at what exactly is being leased, and what condition it’s in. They’ll also consider what condition the rest of the building is in. Whether this will have implications for the tenant in terms of usability or cost, which may be recovered through a service charge arrangement. When they produce your final report, they will largely ignore areas which are in good condition, or which are unlikely to impose a cost on the tenant over the intended lease period. This allows us to keep fees at a suitably lower level by only reporting on the important stuff.
The Important Stuff
If the surveyor does find issues that will result in a cost or usability implication based on the current travelling lease or head of terms. They’ll flag this to the client. In their report, they will set out what the issue is, how much it’s likely to cost to deal with and at what stage in the lease it’s likely to need attention. For example, it might fall in year one, year 4, or only be relevant at lease end. If remedial work would be disruptive, then the surveyor will also mention this in the report. All of this information feeds into a schedule of costs. Surveyors usually break this down into immediate/short-term, medium-term, long-term, and lease-end categories. This breakdown helps potential leaseholders understand the likely maintenance or remedial costs throughout the lease and plan more effectively.
Using information from the documentation provided. The surveyor can then set out the relevant lease clauses in their report as they relate to the condition of the property. They’ll then go on to explain what this means in practice for the specific building, giving specific examples of what will be required. For example, that they will need to complete specific work during the course of their lease.
Reducing Liability
On top of all that, the report will include an assessment of any potential lease end dilapidations liability. This will take into account the condition of the property, the tenant’s plans to fit it out, and the tasks that likely need doing over the course of the lease. The surveyor feeds rough estimates for expected dilapidation costs into the cost schedule included in the report. Giving you a complete idea of the whole-lease repair costs you can expect. Usually by this point, we’re deep into five figures (often 6) of occupational and lease-end cost even on a 5-year lease! Which, needless to say, is over and above the usual rent, rates and utilities costs.
Lastly…
Finally, and most importantly, the surveyor will give some suggestions on how liability could be reduced. After all, most businesses wouldn’t want to pay out that much on a property they don’t even own! Often, the recommendation will be to append a photographic schedule of condition to the lease. This can reduce the tenant’s repairing liability in a relatively simple way. A lot of the time, we’re able to give more bespoke advice on top of this. Like requiring the landlord to repair certain items, or to retain responsibility for them during the course of the lease.
You should review these recommendations and negotiate with the landlord before including them in the lease. Which is why it’s so important to have a leaseholder survey done before the lease is finalised. It’s this section (usually called ‘risk mitigation’) that provides significant cost savings to be made across the lease. Often in the tens or hundreds of thousands of pounds.
Given that the fees for a leaseholder survey are normally less than £2000. Businesses can see a significant return on their investment. And just to note, RICS doesn’t offer this report as a standard service; right now, only our team at Harrison Clarke provides it. If you can see the value, have a question or just want some advice. Just get in touch with our team on 023 8155 0051, and we’d be happy to help.
For more expert advice on surveying and property matters, check out our range of informative videos on our website or YouTube channel. Harrison Clarke Chartered Surveyors is here to guide you every step of the way!
At the time of writing, we have a total of 143 reviews across Trustpilot and Google. We are proud to say that the average rating is over 4.9/5.
