Tight budgets and diminishing returns are tempting commercial landlords to bank their dilapidations settlements instead of using them to fund vital repairs and improvements, according to experts at national commercial property consultancy Lambert Smith Hampton (LSH).

But this could turn out to be a false economy resulting in more expensive repairs in the long run, and long periods of the building standing empty, unable to attract new tenants, says Alexa Cotterell, Head of Building Consultancy at LSH's Birmingham office.

In the current economic climate, the temptation for landlords of commercial property to retain some, if not all, of a dilapidations settlement from a former tenant as a source of additional income has never been greater. But the long term effect of this is older buildings at risk of becoming obsolete, or becoming so unattractive to potential tenants that there are lengthy void periods.

Alexa Cotterell said, "Dilapidations claims are becoming increasingly prevalent due to the current state of flux in the commercial property market. As historically lengthy leases come to an end, the headache for landlords is just beginning." said Alexa Cotterell.

"Premises and their plant and machinery are often outdated and in need of repair or replacement. This problem is compounded by a growing number of occupiers cutting back on maintenance costs to save money. But modern working practices call for modern, flexible accommodation, and this is where the precious dilapidations settlement can be used wisely. Otherwise an income-producing asset can turn into a lacklustre liability," Alexa added.

"There are lots of things - including some 'quick wins' a landlord can do which will serve the changing needs of the 21st century occupier. Such things as raised floors with cable running beneath to deliver power and date flexibly to work stations, installing equipment for wireless technology and superfast broadband, or removing interior walls to create open plan work areas, with meeting rooms and break-out areas can all enhance the value and appeal of a building without costing an enormous amount of money. 

"Green technology is also important and enhances older properties. Replacing obsolete air handling systems, installing fuel efficient boilers, double glazing, improved natural lighting, light sensors and roof insulation are all simple steps which can deliver significant carbon and cost savings. Reception and common areas or visitor areas should also improved to lift the aesthetics of a building," she said.

Alexa added, "All of these things present better for marketing a property and should also achieve a higher rental. Carrying out dilapidations work will not, of course guarantee quick letting or higher rental while the market is so competitive. However, in order to stand the best chance of achieving a letting while demand is low, property must be presented in the best possible light. The majority of tenants looking for space are taking advantage of the decline in the market to obtain better quality premises. So if landlords do not use their dilapidations settlement to good effect they may miss out to landlords taking a more pro-active view. Leaving a property in a dilapidated state could mean it deteriorates further. If a property looks unloved, the chances are it will stay unloved and stay empty for a long time."

She said each case should be judged on its merits and it is sensible for landlords to take early advice from agents and building surveyors.

LSH's Building Consultancy division provides detailed dilapidations advice, negotiates dilapidations claims and identifies upgrade works on a wide variety of property types for an extensive variety of clients.