Dilapidations Provision: How to Estimate It (FRS 102)

Most businesses that lease offices have a future obligation they cannot see on a day-to-day basis: the cost of handing the premises back in the condition the lease requires. For a fitted-out London office, that can be a significant sum. Accounting standards generally require it to be recognised as a liability in the accounts before the lease ends, not when the bill arrives. Finance teams therefore need a reliable estimate, and that is where building surveyors and fit-out teams who price real works come in. We provide works-based pricing that finance teams and their advisers use to support dilapidations provisions.

What does FRS 102 require?

Under FRS 102, provisions are covered by Section 21, Provisions and Contingencies. In broad terms, a provision is recognised when:

• The business has a present obligation as a result of a past event
• It is probable that an outflow of resources will be required
• The amount can be estimated reliably

For dilapidations, the past event is typically making alterations (which creates a reinstatement obligation) or the wear and tear that has occurred (which creates a repair obligation). Lease accounting changes in FRS 102 for periods beginning on or after 1 January 2026 have brought most leases onto the balance sheet, and costs of restoring premises required by the lease may form part of the cost of the right-of-use asset. Your accountant or auditor will confirm the treatment that applies to your business and lease.

Two types of dilapidations obligation

How to estimate a reliable figure

A reliable estimate comes from the specific premises and lease, not a generic benchmark. A good approach:

1. Review the lease: repair, decoration, reinstatement and yield-up clauses, plus licences for alterations and any schedule of condition.
2. Inventory alterations: what has been installed since the lease began.
3. Survey the premises: a dilapidations survey or liability assessment by a building surveyor.
4. Price the works: works-based pricing for strip-out, reinstatement and redecoration.
5. Consider Section 18: whether the landlord's likely loss caps the claim. See dilapidations claims and Section 18.
6. Document assumptions: lease end date, likely approach (works or settlement), inflation and discounting.

Using benchmarks

Benchmarks are useful as a sense check. In London, office dilapidations claims commonly fall around £25 to £65 per sq ft depending on the fit-out and condition. But a lightly fitted office in good condition might be well below that, and a heavily fitted floor with comms rooms, kitchens and many meeting rooms well above. Use a survey or works-based price for material balances.

When to update the provision

• At each reporting date
• When alterations are made or removed
• When a survey, schedule or dilapidations report is received
• When lease plans change, for example a decision to exercise a break or renew
• When costs change significantly

Does doing the works early help?

If you carry out reinstatement works before the lease ends, the provision is used as the cost is incurred. Doing works yourself can cost less than a settlement based on the landlord's estimate, and it removes uncertainty. See office strip-out and office dilapidations.

Planning ahead at the start of a lease

The best time to think about dilapidations is when you take the lease:

• Agree a schedule of condition so you are not liable for existing defects
• Negotiate reinstatement terms in the licence for alterations
• Consider demountable partitions that are easier to remove
• Keep records of the condition and alterations

VAT and dilapidations provisions

Damages payments to a landlord are normally outside the scope of VAT, while works you commission attract VAT, which may or may not be recoverable. This can affect the amount you need to provide for. See VAT on office refurbishment and dilapidations.

Information your auditors may ask for

• Lease and licences for alterations
• Schedule of condition, if any
• Surveyor's assessment or works-based pricing
• Basis for the estimate and key assumptions
• Lease end and break dates
• Movement in the provision since the last reporting date

Common mistakes

• Using a single per sq ft rule of thumb for very different premises
• Forgetting alterations made during the lease
• Ignoring repair and redecoration and only providing for reinstatement
• Not updating the provision when plans change
• Not considering the Section 18 cap or the landlord's intentions

Multiple leases and portfolios

Businesses with several leased offices often provide for dilapidations across a portfolio. A consistent method helps: the same cost basis for similar premises, updated surveys for leases approaching their end, and lighter-touch reviews for leases with many years left. Prioritising survey spend on the largest and nearest liabilities gives the best accuracy for the cost.

Example: how an estimate comes together

For a fitted-out 8,000 sq ft London office floor, an estimate might combine strip-out of tenant partitions and kitchens, reinstatement of ceilings, lighting and carpet to Cat A, redecoration throughout and a small allowance for repairs and fees. Using the ranges above, that gives a range rather than a single figure, which is then narrowed by a survey and works-based pricing for the specific floor. The range is useful early in a lease; the narrowed figure matters as the lease end approaches.

Who should prepare the estimate?

For small leases with simple fit-outs, an internal estimate using benchmarks may be acceptable, supported by a periodic review. For material balances, a building surveyor's liability assessment and works-based pricing give a more defensible figure. Many businesses commission a full survey as the lease end approaches and a lighter review in earlier years.

Provision vs actual settlement

The final settlement often differs from the provision. If you carry out works yourself, the cost is incurred as works progress. If you settle with a payment, the figure reflects negotiation, Section 18 considerations and the landlord's plans. Any difference between the provision and the final amount is recognised when the settlement is agreed. Keeping the provision under regular review reduces the size of any surprise.

Reviewing the provision each year

A provision is an estimate, so it should be revisited at each year end. Changes that justify an update include new alterations, a fresh dilapidations report, a change in rebuild costs, or a decision to renew or leave. If the estimated liability rises, the provision is increased; if a settlement or lease renewal reduces it, the excess is released. Keeping a short note of how each year's figure was reached helps your auditors and makes the final negotiation easier, because you can show how the liability was tracked through the term.

Get works-based pricing

We can survey your premises with your surveyor and price the strip-out, reinstatement and redecoration as we would deliver them, to support your provision. Request a quote through our form.

Frequently asked questions

Related guides

• Office Fit-Out Cost per Sq Ft and per m² in London (2026)
• Cat A vs Cat B Fit Out: What’s the Difference? (2026)
• Office Dilapidations in London: A Tenant’s Guide
• Dilapidations Claims and Section 18 Caps Explained
• The Dilapidations Protocol: Steps and Timescales Explained
• Office Fit-Out Cost Calculator London (2026)
• Office refurbishment and fit-out in London
• Areas of London we cover