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What is a dilapidation clause in commercial lease?
A dilapidation clause in a commercial lease is a contractual obligation that requires the tenant, at the end of the lease, to restore the premises to their original condition or to a defined specification agreed at lease commencement. It protects the landlord from inheriting a space in poor condition after a tenancy.
What Dilapidation Typically Requires
- Removal of all tenant fit-out (partitions, raised floors, modular cabins).
- Restoration of walls, ceiling, and flooring to original or agreed finish.
- Removal of custom IT/electrical infrastructure.
- Repainting and minor repair works.
Dilapidation Deposit
Many leases require a separate dilapidation deposit (in addition to security deposit) held by the landlord to fund reinstatement works if the tenant fails to comply. Typical dilapidation deposits: ₹50–₹200/sq ft in Grade A offices.
Dilapidation Schedule
A Schedule of Condition (property inspection report at lease commencement) is the landlord's key tool in enforcing the dilapidation clause. Without a clear baseline condition record, the landlord cannot prove the extent of tenant-caused deterioration.
The dilapidation clause is a critical exit cost for commercial tenants. Restoration costs for a large office fit-out can run into lakhs or crores of rupees. Tenants should negotiate the scope of dilapidation requirements carefully at lease signing and maintain the space well throughout the tenure to minimise end-of-lease reinstatement costs.
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