What are dilapidations?
Dilapidations are claims made against a commercial tenant by the landlord( whilst the tenant is in occupation of the property or more usually upon the expiry of the tenant’s lease) for breaches of repairing covenants in the lease that the tenant has not dealt with. The landlord’s remedies depend on the specific terms of the lease and whether or not the lease term has expired.
A commercial lease usually contains a repairing covenant and a covenant to decorate. The lease will also set out the works required, and the standard of repair required from the tenant during the tenant’s occupation of the property and upon expiry of the tenant’s lease.
The issue of Dilapidations is generally a hotly contested area of dispute between landlords and tenants and can give rise to complex legal, surveying and valuation problems. It covers several issues including disrepair, redecoration and reinstatement of the property and can be very costly for the tenant. The tenant usually tries to minimise their liability for the repairs and redecoration whilst the landlord generally tries to place most of the liability for the repairs and refurbishment on the tenant.
For cash-flow and other reasons it is essential for the landlord that the property is returned in good condition at the end of the tenancy so that the landlord can relet the property without having to give the new tenant a rent-free period at his own expense.
The Dilapidations Protocol
This protocol applies to commercial property situated in England and Wales. It relates to claims for damages for dilapidations against tenants at the termination of a tenancy. The tenant usually finds out about their liability when a Schedule of Dilapidations (aka Schedule of Condition) is served by the landlord.
What is a Schedule of Dilapidations?
A schedule of Dilapidations is a schedule that sets out the outstanding items of disrepair and the works required to put the property back into repair.
The protocol requires landlords to prepare and serve a schedule of dilapidations setting out the works required to put the property in the required state of repair and to quantify a costing for the repairs.. It is designed to isolate the key issues and to enable settlement to be achieved wherever possible.
The Protocol for dilapidations should be followed as far as possible in all cases
Surveyors are usually instructed by the parties to draft the schedule (landlord) and the tenant’s response (tenant) . If the matter cannot be resolved amicably through negotiation, the parties may agree to explore mediation or the landlord may issue court proceedings against the tenant.
What do I need to know?
There are rules on dilapidation claims.
First, if the tenant’s lease is for at least 7 years and has at least 3 years to run, the tenant has a statutory right to serve a counter-notice following receipt of a schedule of dilapidations from the landlord. The landlord will then have to seek the Court’s consent prior to terminating the lease or making a damages claim.
Second, the law limits claims for damages by the landlord to the decrease in value of the landlord’s freehold title attributable to the disrepair. For instance, if the cost of the works are £30,000 and the decrease in value of the landlord’s freehold title is £15,000, the landlord will only be able to claim £15,000.
Third, the landlord is not entitled to damages if the tenant can show that the property is to be pulled down or that structural alterations are to be made which would render the repairs worthless.
If you receive a Schedule of Dilapidations from your landlord you should take advice from a commercial property lawyer .Dilapidations law and procedure is quite complex, and the monies involved are often significant. To avoid potentially expensive claims, it is vital that landlords and tenants seek advice from surveyors and solicitors when considering a dilapidations claim.
Key Points for Tenants at the start of the lease and during the lease.
Instruct your lawyer to consider your dilapidations liability before you sign the lease.
Take photographs of the exterior and interior of the property at the start of the lease.
You must ensure that the repairing covenants in the lease are drafted by reference to the photographs.
Ask your lawyer or your landlord’s lawyer to attach the photographs to your lease.
Keep a record of all repair, decoration and alteration works that you undertake during the currency of your lease. This is essential as it will enable you to provide evidence of works that you have carried out in accordance with your obligations under the lease.
If you have carried out remedial works during the tenancy you will be in a stronger position to negotiate a more favourable dilapidations settlement.
Prior to the termination of your lease (eg in the last 6 – 12 months) instruct your lawyer to commence negotiations with your landlord.
If you have a query or would like to book an appointment please get in touch with our dilapidations solicitors on 01234 938089 or by email on . We also work with surveyors who can assist in preparing your response to the schedule of dilapidations. We can advise initially but then work with the surveyor to ensure that your position, whether as landlord or as tenant, is legally and cost-effectively protected. If Court proceedings are necessary, we then become more involved but continue to work with your surveyor and you in order to try to ensure an early commercial resolution to any dispute.
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