End of Tenancy
The lease between owner and occupier will set out the arrangements for the end of tenancy. Although not considered in depth in this fit-out toolkit, this point in the property lifecycle provides a good opportunity for applying sustainability principles that deliver benefits to both owner and occupier.
A key issue is dilapidations & reinstatement. More specifically, any work required by the owner from the occupier to remedy damage or disrepair or to put the premises back to its original state if the occupier has made internal alterations. Under the terms of the lease, the occupier may find that they if they do not carry out such works, they are required to pay the cost of having it done.
In terms of fit-out works and any subsequent alterations undertaken during the tenancy, on granting consent the owner will likely require through Legal Agreements that at the end of the lease the occupier restores the property to its original state if requested to do so.
Typically, unless the owner thinks the alterations have added value, the occupier will probably be required to reinstate the property at the end of the lease or pay the cost of doing so. Although financial settlement of dilapidations liability is often reached and this avoids waste, it is also common for the outcome to financially and environmentally inefficient.
1. A More Sustainable Approach to Dilapidations & Reinstatement
The process of removing previous tenant’s fit-out and alterations, refurbishing the space for marketing, and the subsequent fit-out by the new incoming tenants can have significant sustainability impacts, in terms of waste, material use, disruption and cost.
Owners and occupiers can proactively take a more responsible approach, and seek opportunities to reduce these negative impacts for both parties by decreasing the need to carry out unnecessary strip-out and refurbishment works. The way in which reinstatement and dilapidations provisions within lease agreements are drafted could help support such an approach.
To avoid the disruptive and resource intense process of strip-out and refurbishment, owners may wish to consider a covenant giving them the option to require a payment rather than allowing the occupier to carry out reinstatement works.
End-of-tenancy audits could be undertaken to identify opportunities to retain or upcycle / recycle / re-use fit-out elements off-site. The audit cost could be met by the occupier, and carried out by a suitably qualified independent surveyor. Owners and occupiers could agree on opportunities to be taken, which could result in reduced costs, waste and minimise disruption. Backstop provisions in the lease could allow for more typical reinstatement arrangements should agreement not be reached.
As part of this audit, or subsequently, owners and their letting agents should consider Marketing Space prior to the previous fit-out being stripped out. Incoming occupiers may prefer reusing / adapting elements of the previous fit-out on grounds of cost reduction, expediency and corporate sustainability commitments.
2. Undertake an End of Tenancy Review
The benefits of undertaking Post Occupancy Evaluation as part of a more sustainable approach to fit-out projects is referenced throughout the Toolkit (See Handover, Commissioning and Into Occupancy).
Owners and occupiers should also consider the mutual opportunities for learning that can come from undertaking an end of tenancy evaluation. Either party could complete their own evaluation or run a joint process focused on an exit interview.
For owners, they could gather useful feedback from the exiting occupier on the space (building, location, services etc.), suggestions for improvements, and potential market insight by understanding where the occupier is relocating to and why.
An evaluation for occupiers is likely to be more internal and include gathering feedback from their staff and other building users. This feedback could provide excellent insights to inform any future process of Seeking Space, and setting a Requirements Brief of the next fit-out project.