Dilapidations claims: an introduction for landlords

Dilapidations claims

The end of a tenancy is always a stressful time for a landlord. They must confront numerous repairs, redecoration, and other work before the property is ready for re-letting. This financial and time pressure is never more acutely felt than when poor economic and trading conditions lead to an oversupply of commercial property. Here’s my introductory guide to dilapidations claims.

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What are dilapidations?

‘Dilapidations’, or ‘dilapidations claims’, are terms frequently used to denote the ‘exit costs’ for a tenant at the conclusion of their lease. Typically, these costs relate to restoring the property to a good standard of repair and decoration, regardless of its actual condition at the commencement of the lease. This includes removing any aesthetic alterations made by the tenant. Additionally, landlords seek compensation for loss of rent while undertaking these works.

Many tenants fail to recognise the significance of lease wording. In particular, they may not be aware of what they have accepted regarding the condition of the premises upon its return. Tenants tend to budget for more immediate and regular expenses such as rent, business rates, fit-out costs, utility bills, and service charges. However, their liability for dilapidations at the end of the lease is often far from their thoughts.

What happens at the end of a lease?

At the end of the lease, the parties’ obligations to one another cease, except for any claims regarding breaches of the lease.

Schedule of dilapidations

A commercial lease inevitably permits the landlord to issue a schedule of dilapidations at any time. The schedule details any repairs required to the property during the lease term and within a reasonable time thereafter.

At the end of the lease, an experienced dilapidations surveyor should prepare the schedule of dilapidations (referred to as ‘terminal dilapidations’). We can recommend a dilapidations surveyor to you. Alternatively, the Royal Institution of Chartered Surveyors (RICS) offers a useful search facility on its website.

The surveyor should prepare the schedule of dilapidations with the benefit of legal advice on interpreting the repairing obligations in the lease. Once the schedule is complete, I recommend that we serve it on your behalf to ensure:

• it encompasses all possible heads of claim under the lease; and
• compliance with the notice provisions outlined in the lease.

Dilapidations claims: Who carries out the work?

A commercial lease generally provides:

• for the tenant to undertake the work at their expense; however, if they fail to do so, the landlord may complete the work at the tenant’s expense; or
• for the landlord to carry out the works at the tenant’s expense; or
• for the tenant to reimburse the landlord an amount equal to the cost of restoring the property to its condition had the tenant fulfilled their repair obligations.

With regard to the final option noted above, the court has construed such provisions to mean that the landlord can claim this sum even if they do not intend to undertake the work. However, this is contingent on the specific wording of the lease. Without it, a dilapidations claim constitutes a claim for damages due to breach of contract. Consequently, the landlord must prove their loss.

Dilapidations Protocol

After many years of discussion, in 2012, the Dilapidations Pre-Action Protocol was formally adopted into the Civil Procedure Rules in England and Wales. The Dilapidations Protocol aims to promote the settlement of dilapidations claims before court proceedings are issued. To that end, the parties are encouraged to exchange all relevant information concerning the dispute at an early stage. Where settlement is not possible, the Dilapidations Protocol manages the initial stages of the litigation process.

It’s not surprising that dilapidations claims are complex and often highly contentious. The sums involved can be considerable, highlighting the importance of ensuring a carefully drafted lease. Poorly drafted leases create uncertainty, increasing the likelihood of expensive and time-consuming litigation. As a landlord, they also diminish the value of your investment.