Dilapidations: budgeting for handing the space back

Most fit-out budgets stop the moment the office looks finished. The lease does not: it also covers the day you leave, and by law you must hand the unit back close to the condition you received it in, not the condition you built it into (Law No. (26) of 2007, retrieved 2026-09-07). Reinstatement, or "yield-up" in local lease drafting, is routinely the largest unbudgeted line item in a lease exit, and disputes over it are among the most common disagreements landlords and tenants bring before Dubai's Rental Disputes Settlement Centre (Kayrouz & Associates, retrieved 2026-09-07).

Strip a standard fitted office back to shell and core in Dubai and the demolition line alone typically runs to AED 110-150 per square metre, before MEP decommissioning, waste permits and mobilisation are added (MD Technical Services, retrieved 2026-09-07). Run that rate through the ROI calculator against your own floor area and you get a realistic exit number rather than the one most tenants assume, which is "a bit of painting and patching."

For a heavily fitted unit — a trading floor with raised access flooring, a kitchen with extraction ductwork, a server room with dedicated cooling — reinstatement can run to hundreds of thousands of dirhams, and that is before any holding-over penalty for missing the handover date.

Key Takeaways

• Stripping a standard office back to shell and core costs roughly AED 110-150 per square metre in Dubai; retail or F&B units with heavier MEP run AED 160-215 per square metre or more.
• Under Law No. (26) of 2007, Article 21, a tenant must return the unit in the condition received, save for ordinary wear and tear — reinstatement is one of the most disputed clauses at lease end.
• Free zones such as DIFC run their own leasing law and tribunal, separate from Dubai's Rental Disputes Settlement Centre, so confirm which regime actually governs your unit.
• Under IFRS 16, the estimated cost of restoration belongs on the balance sheet at lease commencement, not as a surprise discovered at exit.
• A photographic schedule of condition taken at move-in is the cheapest insurance available against a disputed dilapidations bill.

What "yield-up" actually obliges you to do

Yield-up means removing what the fit-out added and returning the unit to its base-build state: partitions come down, raised flooring comes up, suspended ceilings are stripped back, and mechanical, electrical and plumbing changes are reversed to how they arrived (CreativeZone, retrieved 2026-09-07). "Original condition" is doing a lot of work in that sentence, and it is worth pinning down in writing what it means for your specific unit before you sign, not when the surveyor turns up.

The work usually needs sign-off before it counts as complete, not just before it starts — building management, the free zone authority, Dubai Municipality or Civil Defence, depending on scope. A fit-out that never got the right permit at installation is harder to reverse cleanly, because nobody holds a clean record of what actually went in.

What it actually costs to strip a fit-out

Rates scale with complexity rather than floor area alone. A basic strip-out — carpet, partitions, loose furniture — runs AED 55-75 per square metre. A standard commercial office, where ceilings, cabling and light fittings also come out, sits at AED 110-150 per square metre. Retail and food and beverage units, where kitchen extraction, drainage and heavier power infrastructure need reversing, run AED 160-215 per square metre (MD Technical Services, retrieved 2026-09-07).

Take a 500-square-metre office at the standard commercial rate: AED 55,000-75,000 in demolition and removal alone. Add MEP decommissioning, make-good, skip hire and project management, and the realistic exit figure is closer to AED 90,000-130,000 — none of which appears in the original Category A or B fit-out quote.

Mainland law, free zone law: check which one actually applies

Mainland Dubai tenancies default to Law No. (26) of 2007, as amended by Law No. (33) of 2008, and Article 21 sets the surrender standard: same condition as received, ordinary wear and tear excepted. Disputes go to the Rental Disputes Settlement Centre.

Free zones do not necessarily sit under that law. DIFC runs its own regime under DIFC Law No. 1 of 2020, in force since January 2020, with its own leasing tribunal rather than the RDSC (Afridi & Angell, retrieved 2026-09-07). JAFZA, DMCC and other authorities each publish their own standard-form lease, and the reinstatement wording differs from the mainland default. Read your authority's own template rather than assuming Article 21 governs — it may not.

Booking the liability before you are staring at the number

For any entity preparing IFRS financial statements — most UAE mainland and free zone companies of any size — a dilapidations obligation is not something to discover in the final quarter of the lease. IFRS 16 requires the estimated, discounted restoration cost to be added to the right-of-use asset at lease commencement, matched by a provision under IAS 37 (IFRS Community, retrieved 2026-09-07). That provision then unwinds through depreciation and discount charges across the term, rather than landing as one number in the year you leave.

Treat that as the floor for your own budgeting. A monthly accrual against the strip-out estimate, reviewed whenever the fit-out is materially extended, stops the eventual bill competing with rent and payroll in the final quarter of occupancy.

Negotiating the clause down before you sign, not after

The obligation is negotiable when you sign the lease, and far less negotiable six months from expiry. Three things are worth asking for: limiting reinstatement to alterations the tenant actually made rather than everything on site, a defined handover standard attached as a schedule rather than the vague phrase "original condition," and a waiver if the landlord intends to re-let with the existing fit-out in place — a fitted unit is often more valuable to the next tenant than an empty one, which gives the landlord a reason to agree.

That negotiation belongs inside the fit-out solutions planning at design-brief stage, alongside the layout and the budget, not as a clause nobody re-reads until the renewal notice arrives. A photographic schedule of condition taken at move-in, dated and agreed with the landlord's representative, is the cheapest protection against a disputed bill — it fixes the baseline before anyone has an incentive to argue about it.

Sequencing the strip-out itself

Order matters more than most tenants expect. Approvals should be secured before demolition starts, not once the contractor is already on site. MEP decommissioning needs the right sequence to avoid damaging base-building systems the landlord will separately inspect. And the work needs to finish before the expiry date, not on it — missing it typically triggers a holding-over charge on top of the reinstatement cost, so build the programme backwards from expiry with contingency, not forwards from when notice was served.

Frequently asked questions

Does "wear and tear" cover normal carpet and desk marks?

Generally yes. Ordinary wear and tear from day-to-day occupation is excluded from the tenant's liability under Article 21, but the line between fair wear and actual damage is where most disputes start. A dated condition report from move-in is what settles the argument, not a verbal understanding from years earlier.

Who pays if the landlord wants to keep some of the fit-out?

That is a negotiation, not an automatic outcome. Landlords sometimes waive reinstatement on elements they intend to re-let with, in exchange for no compensation, or occasionally a shorter rent-free period elsewhere in the deal. Get whatever is agreed into the lease or a side letter — a verbal assurance from the leasing agent is not enforceable at handover.

Can the reinstatement clause be renegotiated at renewal?

Yes, and renewal is often the better moment, because you already have real data on what your fit-out cost to install. Ask for the clause to be scoped to alterations made during that specific term, rather than carried forward unchanged.

What happens if the strip-out is not finished by the expiry date?

Most leases treat an incomplete handover as holding over, which typically carries a rent penalty on top of the outstanding reinstatement cost. Build the programme with contingency and start approvals well before the notice period runs out.

The bottom line

The reinstatement clause is not boilerplate at the back of the lease; it is a real liability on the books from day one under IFRS, and a real invoice at the end regardless of how it is accounted for. Tenants who handle it well priced the strip-out before signing, documented the starting condition, and treated the provision as occupancy cost rather than an exit-year surprise.

Get the scope agreed in writing, get the condition documented at move-in, and get a contractor's estimate against your actual floor plate well before the final year of the term. The number rarely falls the longer it is left unaddressed.

Figures were verified on 7 September 2026 against Dubai Land Department legislation, UAE fit-out contractor pricing guides and IFRS interpretive guidance. Strip-out costs vary with structure age, MEP complexity and contractor mobilisation distance, so treat the ranges here as a budgeting starting point rather than a fixed quote.