This short series explores dilapidations and how the responsibilities of maintaining a property are divided differently between the landlord and the tenant. In this part, we explore what landlords need to know, and how they can actively work with their tenants to ensure the property is carefully maintained. You can click here to read the Tenant’s Brief Guide.
Commercial leases will normally contain obligations on the tenants to carry out various repairs, maintenance and decorations (known generally as dilapidations) during the term of the lease.
These dilapidations obligations can be overlooked by tenants whilst they are occupying and focussing on their business, but they are likely to become an issue when the lease comes to an end. As a landlord, you may only be aware of this neglect when the lease comes up for renewal, or the tenant decides to find an alternative property.
As a landlord, it is important that you are aware that:
During the term of the lease
- You should monitor the tenant’s use of the property and whether it is complying with the repair obligations
- Many leases will give you the right to request an inspection of the property on reasonable notice to ensure compliance
- If the failure to comply is significant then it is open to you to serve a forfeiture notice (a section 146 notice) to bring the lease to an end. The notice must give the tenant a period of time to try and rectify the dilapidations but, if it does not, it remains open to you to re-possess the property. Be aware that there are safeguards in place for the tenant if this course of action is taken
Towards the end of the lease
- When it is clear when the tenant is leaving, you should instruct a dilapidations surveyor to prepare a detailed schedule setting out where the tenant has failed in its obligations and what work is required to bring the property to the required standard to comply with the lease provisions
- In a lot of cases, the landlord will serve a preliminary schedule on the tenant before they leave to allow the tenant the opportunity to consider the claim and to carry out works
- The schedule should be served by a professional and in line with the Property Lawyers’ Association protocol, which has been approved by the court who will want to see it complied with
- The lease itself is likely to contain specific provisions for the correct service of notices and documents, and these should be followed precisely to avoid any challenge to the document
At the end of the lease
- Once the tenant has left, the schedule should be reviewed and amended if necessary to include costs for the individual items claimed and to include professional fees and anticipated loss of rent to cover the period of time the works will take to complete
- Professional fees (e.g. surveyors’ and lawyers’ fees) are normally covered by the terms of the lease but should be included as well
- The schedule will need to reflect your intentions at the time it is signed, so if you intend to redevelop the property then this should be flagged up
- The tenant will have 56 days under the protocol to respond in full. If the tenant does not respond then you can proceed with further action, subject to compliance with the protocol
- If the tenant does respond then it is likely that they will not agree with the claim. The protocol anticipates a constructive dialogue taking place between the parties to try and resolve matters
- If the matter cannot be resolved through negotiation, then it is open to the parties to take the matter further – either through court proceedings, mediation, or expert determination
Just because works need to be done, that does not mean that the costs of those works will be what you will receive from the tenant.
Not only can the tenant argue over the values attributed to the works, but there are other defences open to the tenant to argue, known as section 18 defences:
- The cost of the works is not necessarily the amount of your loss.
The loss should be calculated by reference to the loss in value of the property with and without the works being done. So, if the cost of the works is £100,000 but the value of the property without the works being done is £250,000 and with the works carried out is £300,000, it is arguable that the loss and genuine claim is only £50,000
- You intend to redevelop or demolish the property.
Alternatively, if you intend to redevelop or demolish the property and have no intention of carrying out the works you are claiming for then it is arguable that there is no claim at all.
How we can help
The large majority of dilapidations claims are settled through negotiation and do not go any further. In some situations, however, agreement is not reached and it is in those cases that matters may proceed to court, mediation, or some form of expert determination – all of which we have expertise in and can assist with.
Dilapidations arguments can be technical in nature and obtaining professional advice at an early stage is advisable. We can provide advice at any stage of the process and use a network of dilapidations surveyors who are also able to assist.
Please contact Richard Gore to discuss your situation further.