What are Dilapidations

We are often asked to explain what dilapidations are.  At the end of a commercial lease, the landlord will require the tenant to return the property in accordance with the repairing and redecorating obligations under the terms of the lease. If the tenant fails to carry out their obligations at the end of the lease, the tenant is likely to be liable to the landlord for reasonable damages. The landlord will need to serve a schedule of dilapidations, which is a document recording the state of a property in disrepair.

The aim of this article is to help a landlord make a successful claim for dilapidations. We have set out briefly points to take into consideration when negotiating a lease, what a landlord can claim and restrictions on any claim, the protocol, key points in preparing for a negotiation and a few top tips.

When negotiating a lease:

It is important for a landlord to ensure the clauses in the lease are as strong as possible to cover a situation where the tenant leaves the property in disrepair. Below are three examples of how a landlord’s claim can be strengthened by including reference to these points in the lease.

• Loss of rent – If a landlord cannot re-let the property because repairs need to be carried out, then any claim would be for damages. However, if the lease seeks loss of rent from the tenant it will be a contractual claim and strengthen the landlord’s claim.
• Costs – a landlord will incur costs instructing professionals (solicitors and surveyors) a clause should be included covering the payment of such costs.
• A schedule of condition – should be attached showing the state of the property at the start of the tenancy, thus reducing arguments in relation to this.

What damages can a landlord claim?

A dilapidations claim is assessed by looking at the repairing obligations in the lease and the state of the property at the end of the lease.  A list of the breaches and costs to remedy any repairs can be claimed.

The landlord can claim for loss of rent and costs as noted above.

Restrictions on a landlord’s claim for damages

Reasonableness – a landlord can only claim for what is reasonable, which will be a question of evidence and fact.

Demolition /redeveloped – the damages are likely to be nil as the landlord will not be able to show that the disrepair has affected the value of the building and any repairs would not be required.

Section18 of Landlord and Tenant Act 1927 – provides a statutory cap for damages by calculating the difference by which the value of the landlord’s interest has reduced due to the tenants breaches of the repairing covenant known as the diminution in value. That is to say which is the lower of the cost of the remedial works or the effect on the property’s value. The idea is to compensate the landlord for genuine losses. This can have a significant impact on a claim.

Protocol

Any claim for dilapidations needs to comply with the dilapidations protocol, failure to do so can result in an unfavourable cost order if the matter goes to court.  There is a timetable for complying with the dilapidations protocol.

• The landlord sends a schedule of dilapidations, including a quantified demand an approved form to the tenant within 56 days after the termination of the tenancy
• The tenant has 56 days from the date of receipt to respond to the schedule of dilapidations including the quantified demand, if the tenant wishes to rely on a S18 defence (see below) it must be disclosed at this point.
• There should be a negotiation between surveyors within 28 days of the tenant’s response. Any negotiations should be on a without prejudice basis.
• The landlord sends a quantification of loss to the tenant within 56 days and
• The tenant can respond within 56 days.
• At every stage both landlord and tenant should review their positions and aim to narrow the issues and consider alternative dispute resolution to avoid court proceedings.

Key points

 Preparing for a negotiation before the end of the lease

1. Check the lease a year before the end of the tenancy and consider the clauses in the lease and decide with your surveyor and solicitor a strategy to take the matter forward.
2. Instruct a surveyor to prepare a schedule of dilapidations well before the end of the lease and ask solicitors to check the lease to see if there are any unusual clauses and to advise you as to whether you can claim loss of rent and costs.
3. Documents will need to be served, such as the schedule of dilapidations or a notice in respect of reinstatement of the premises, Ensure that such documents are served in accordance with the lease provision.

If a tenant fails to carry out the work in full, by the end of the lease a further schedule of dilapidations will need to be served.

At the end of the lease

4. Once the schedule has been served try and negotiate on a without prejudice basis.
5. Comply with the dilapidations protocol.
6. If agreement cannot be reached quickly use an alternative such as a mediation or other alternative dispute resolution.
7. It is always best to try and carry out a schedule of dilapidations with quantified damages as soon as possible and try and reach agreement as soon as possible.

Top Tips

Lease renewal – where a tenant is renewing their lease ensure the new lease refers to the tenants previous occupation and any dilapidations claim dates back to the start of the first lease.

Allowing the tenant access to the property after the lease has ended – you should not agree to this as you will be giving the tenants new rights.

Negotiation – At the end of any negotiation ensure the settlement is recorded so action can be taken if there is a failure for the terms to be carried out.

Conclusion

At Tollers we can help you draft a lease, negotiate a renewal and at the end of the lease help you with a dilapidations claim. We can also help you with issues that arise during the tenancy.

It is advisable to take advice as soon as possible to set the foundations for a strong settlement. The cost of proceeding to court is expensive, time consuming and stressful and should be avoided by taking steps to reach a negotiated settlement.

Talk to Tollers Dispute Resolution team on 01604 258558 today.