CommercialDilapidations liability assessments and accounting

A dilapidations liability assessment is an independent, costed estimate of what a tenant is likely to owe for repair, reinstatement and redecoration when a commercial lease ends. Lansdown Associates’ RICS Chartered Surveyors prepare these assessments so that you, and your accountant, have reliable evidence for budgeting, provisions and tax planning.

Commercial dilapidations also affect the accounts and tax position of tenants and landlords. For a tenant approaching the end of a lease, a potential dilapidations liability can be a significant financial cost, so understanding how it should be recognised in the accounts, and how it may be treated for tax, is an important part of lease-end planning. For landlords, dilapidations can have accounting implications where compensation is received from a tenant, or where repair, refurbishment or redevelopment is planned after lease expiry.

Working together, RICS Chartered Surveyors and accountants help businesses understand both the property and the financial implications. This four-part guide explains how.

An important distinction: we provide the property and construction assessment. Your accountant or tax adviser determines the accounting and tax treatment.

Part 1: What are dilapidations and why do they matter to accountants?

Dilapidations are breaches of a tenant’s obligations under a commercial lease relating to matters such as repair, reinstatement and redecoration. At the end of the lease, a landlord may seek compensation where the tenant has failed to comply with those obligations. This can lead to a terminal dilapidations claim, which may be a substantial financial liability for the tenant.

From an accounting perspective, the potential liability may need to be considered before the lease expires. Where a tenant has a present obligation arising from a past event, and the relevant accounting recognition criteria are met, a provision may be required in the company’s financial statements. The precise accounting treatment depends on the circumstances and the applicable accounting framework, and should be determined by the company’s accountant or financial adviser.

This is why the tenant, accountant and chartered surveyor should talk to each other early. The surveyor assesses the physical condition of the property, reviews the lease obligations and gives an informed assessment of the likely dilapidations exposure. The accountant then considers how that information should be reflected in the accounts and tax computations.

A dilapidations liability should not be treated simply as a property issue. For businesses approaching lease expiry, it can form an important part of financial forecasting, budgeting and year-end accounting.

The accounting framework in brief

For background only, and for your accountant to apply:

Many UK companies report under FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland, which deals with provisions in Section 21, Provisions and Contingencies. Companies reporting under international standards apply IAS 37.
Both broadly require a present obligation (legal or constructive) arising from a past event, a probable outflow of resources, and a reliable estimate of the amount. That third condition is where a surveyor’s assessment helps.
The Financial Reporting Council’s Periodic Review 2024 amendments, mostly effective for periods beginning on or after 1 January 2026, bring most leases onto FRS 102 lessees’ balance sheets in a model based on IFRS 16. It is worth reviewing how your reinstatement obligations are presented with your accountant.

Part 2: Dilapidations, provisions and the Dilapidations Protocol

The Dilapidations Protocol provides a framework for dealing with claims about the physical condition of commercial property at the end of a tenancy. The process commonly involves the landlord’s surveyor preparing a schedule of dilapidations, identifying alleged breaches of the tenant’s lease obligations and the works considered necessary to remedy them.

For a tenant, receiving a schedule of dilapidations therefore gives its accountant important information when assessing the potential financial exposure under the lease.

A schedule is not the final figure

A schedule of dilapidations should not automatically be treated as the final amount payable. The tenant’s chartered surveyor may review the schedule, assess the alleged breaches against the lease and negotiate with the landlord’s surveyor, which can change both the scope and the value of the claim. Damages for disrepair are also capped by section 18(1) of the Landlord and Tenant Act 1927 at the reduction in the value of the landlord’s interest.

From an accounting perspective, this distinction matters. An accountant may need to consider the best estimate of the potential liability, taking into account the available evidence and the stage reached in negotiations. Our assessment provides useful supporting evidence for that judgement. Where a provision is recognised, the appropriate treatment depends on the applicable accounting standards and the circumstances of the business, so the accountant should decide the treatment and treat the surveyor’s estimate as one piece of evidence.

Early preparation is particularly beneficial where a business is approaching its financial year end and its lease is also approaching expiry.

Part 3: Dilapidations and tax – how accountants can help

A common question from businesses is whether dilapidations costs reduce their tax liability. It depends on the type of work and how it is treated for tax.

The tax treatment of a dilapidations payment or provision depends on the specific circumstances and the nature of the underlying obligation. A provision recognised in the accounts does not automatically mean an equivalent deduction is available for corporation tax. In general terms, accountants will consider whether the expenditure relates to the tenant’s contractual obligations, whether it is revenue or capital expenditure for tax purposes, the timing of the liability, and whether the conditions for tax deductibility are met.

A properly prepared dilapidations liability assessment gives the accountant the facts needed for those decisions. For example, we may identify that a tenant has obligations to:

Repair damaged building elements
Replace defective finishes
Reinstate alterations
Remove tenant fit-out
Redecorate the premises
Carry out other works required by the lease

The accountant can then assess the financial and tax implications of those obligations and determine the appropriate treatment.

Can dilapidations reduce corporation tax?

Potentially, but not automatically.

Where the underlying expenditure qualifies as an allowable revenue expense for tax purposes, it may reduce the company’s taxable profits. Capital expenditure and other non-deductible amounts may be treated differently. Equally, recognising a provision in the accounts does not, by itself, establish that a corporation tax deduction is available. HMRC’s Business Income Manual sets out the conditions under which a provision may be allowable, including that it relates to revenue expenditure, not capital expenditure, follows Generally Accepted Accounting Practice and is estimated with sufficient accuracy.

The precise tax treatment should therefore be confirmed by the company’s accountant or tax adviser, taking into account current HMRC guidance, the applicable accounting framework and the specific terms of the lease.

Why early advice matters

A dilapidations assessment obtained before the company’s year end gives the accountant better information when considering provisions, cash-flow requirements and potential tax consequences. It also allows the tenant to make informed decisions about whether to carry out remedial works before lease expiry or negotiate a financial settlement with the landlord.

The surveyor provides the property and construction assessment; the accountant determines the accounting and tax treatment. Together, they give a much more complete picture of the tenant’s financial position.

Part 4: How RICS Chartered Surveyors and accountants work together

The most effective approach to commercial dilapidations often involves collaboration between the tenant, accountant, tax adviser, solicitor and RICS Chartered Surveyor. The surveyor’s role is to assess the property and lease obligations, identify potential breaches, prepare or review a schedule of dilapidations and advise on the likely cost of remedial works or settlement. The accountant uses this to consider the accounting treatment, potential provisions, cash-flow implications and tax position.

For tenants, this collaborative approach can help to:

Identify potential dilapidations liabilities early
Improve financial forecasting
Provide supporting evidence for accounting provisions
Assess the potential cost of remedial works
Consider the tax treatment of qualifying expenditure
Support negotiations with the landlord
Reduce the risk of unexpected costs at lease expiry

For landlords, accountants may also need to consider the accounting and tax treatment of dilapidations receipts, together with the costs of any subsequent repair, refurbishment or redevelopment.

Property and tax advice must remain clearly separated. A chartered surveyor can give an informed assessment of building condition, lease obligations and likely construction costs, but tax advice should come from a suitably qualified accountant or tax adviser.

What our dilapidations liability assessment includes

Lease review: repairing, decorating, reinstatement and yield-up covenants, plus licences for alterations, side letters and any schedule of condition survey attached to the lease.
Inspection: a photographic record of the current condition of the premises and any alterations.
Costed schedule: anticipated works split into repair, reinstatement and redecoration, with associated professional fees and a note on VAT.
Factors that may reduce liability: the section 18(1) position, the landlord’s likely intentions and relevant case law.
Practical options: works you could programme before lease expiry and where negotiation may be more cost-effective.
A written report your finance team and accountant can rely on, which we can update at future reporting dates.

The dilapidations liability assessment is a named service in its own right, priced separately from our wider dilapidations surveyor work, so it can be commissioned on its own. Our RICS Chartered Surveyors regularly prepare these assessments for accountants, commercial organisations and institutional clients.

Related services and guides

Dilapidations surveyor – schedules, responses and negotiation at lease end.
Schedule of condition survey – limit future liability from the start of a lease.
Planned preventative maintenance survey – spread the cost of repairs across the lease.
Dilapidations case study – a £1,600,000 terminal claim settled for £320,000.
Guide: FRI lease tenant protection – protecting your business under a full repairing and insuring lease.

Dilapidations liability assessment FAQs

When should we get a dilapidations liability assessment?

Ideally before your financial year end, and well before lease expiry, typically 12 to 24 months ahead or earlier where the lease has extensive repairing, reinstatement or alteration obligations. We can update the assessment at later reporting dates.

Is the landlord’s schedule of dilapidations the figure we should provide for?

Not automatically. A schedule is the landlord’s claim, and its scope and value often change after review and negotiation. Your accountant will consider the best estimate using the available evidence, including our assessment.

Is a dilapidations provision tax-deductible?

Potentially, but not automatically. It depends on whether the expenditure is revenue or capital, the timing, and whether HMRC’s conditions are met. Your accountant or tax adviser should confirm the treatment.

Do you provide accounting or tax advice?

No. We provide the property and construction assessment. The accounting and tax treatment should be determined by your accountant or tax adviser, and we are happy to work directly with them.

Can landlords use this service?

Yes. Landlords can use an assessment to understand the likely value of a claim and to inform their accountant about dilapidations receipts and future works.

How much does a dilapidations liability assessment cost?

The fee depends on the property, the lease and the scope of the assessment. We provide a free quotation, and we confirm the scope and fee in writing before we start.

Planning for commercial lease expiry?

Leaving dilapidations until the end of the lease makes it harder to budget accurately, plan remedial works or assess the potential tax implications. An early dilapidations liability assessment gives tenants a realistic budget and gives your accountant the information needed to consider the wider financial picture. For landlords, a professional schedule of dilapidations gives them an evidenced claim to negotiate from.

Call 0151 374 0905 or email office@lansdownassociates.co.uk (Monday to Friday, 09:00 to 17:00) to discuss your requirements.