The economic impact on dilapidation costs
Material shortages, supply chain disruption caused by Russia’s invasion of Ukraine and rocketing energy prices are putting pressure on construction firms. But what is the economic impact on dilapidation costs?
As a result of the continuing shortages of materials, labour and skyrocketing prices, it’s not an easy task to estimate the cost of dilapidations. We look at some of the problems and causes, along with a construction industry forecast for 2023.
How does the economy affect the construction industry?
The volatile UK economy has had a big impact on the construction sector over the past year. Inflation has risen to its highest rate in 40 years. There have also been supply chain issues, caused by various economic and political factors. Delays in shipping materials from overseas into the UK has only exacerbated problems.
How does inflation affect the construction industry?
Back in November 2022, the Construction Leadership Council (CLC) reported pressures caused by rising inflation as the biggest challenge for building companies. The BEIS monthly Building Materials and Components Statistics reported a 15% increase in monthly materialslast October, when compared to the same month in 2021.
Shortage of construction and roofing materials
Over the past year there’s also been material shortages. Products that use a lot of energy to produce, such as bricks, cement, concrete glass, and plasterboard, have significantly increased in cost. As a result, the current forecast for 2023 is for construction material costs to rise by 18%.
Lack of skilled workers
There’s another factor currently hindering the construction industry. ElectricalDirect carried out a survey and found that 25% of building firms were worried about the lack of skilled workers. Back in July 2022, according to payroll data from Hudson Contract, the labour rates for freelance tradespeople increased by 3.5% to £953. The demand for bricklayers soared with wages rising by 9.3%, placing extra pressure on construction project budgets.
Dilapidation costs and VAT
In March 2022, HMRC issued their decision relating to whether VAT would be charged on dilapidation payments. Historically, tenants liable to pay for dilapidations were not charged VAT. The reason being that payments were not for the supply of goods or services. It was debated whether landlords could charge VAT on dilapidation payments, but there was a lot of push back. HMRC has now confirmed dilapidations are outside of the scope for VAT.
When it comes to roof dilapidations, in most cases, simple repairs are required to fulfil the terms of the tenancy agreement. Depending on the nature of the work required, this is likely to have less of an impact from a financial perspective. If the roofing substrate has fallen into disrepair, then dilapidations work would need to be carried out. The correct preparation and application of a suitable roof coating to a specified standard may be required.
Treating cut edge corrosion
If the building has a metal profiled roof, then the cut edges of the sheets can become exposed to the elements. Known as cut edge corrosion, this needs to be treated quickly to avoid further damage to the roof. Giromax® Edgecoat is the market-leading solution for treating cut edge corrosion. This moisture tolerant product uses laminar flake technology to seal in the top and reverse sides of the cut edge.
Repairing roof lights
There may be other issues relating to the roof, which could be fixed relatively easily. Rooflights, for example, often lose their translucency. Under the terms of the lease, this may fall under what’s required to be in a general good state of repair. But this problem can be easily fixed with the use of a suitable product.
Giromax® Rooflight Clearcoat provides a tough, durable finish to protect roof lights againstUV rays and extreme weather conditions. The product is moisture tolerant, so it can be applied quickly and directly from the tin in damp conditions.
When it comes to roof coatings, despite our 20% price decrease and increased market competition last year, we still lead the market. If you need to provide an estimate for adilapidations report, which includes roofing repairs, please speak to our Technical Services Managers for advice.
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