“Dilapidations” is the name given to a claim by a landlord against his tenant for the cost of putting the property back into repair at the end of the lease, together with loss of rent whilst those works are undertaken. A landlord will try to maximise his claim so that the premises are left in the best possible condition or he achieves the best financial settlement; a tenant will naturally wish to minimise the claim against him.
The starting point in all dilapidations claims is the lease itself.
The wording of the repairing covenants is crucial in determining what is required by way of repair. Many tenants do not realise that a covenant to “keep” in repair will normally mean that he must “put” the premises into repair, even if they were in disrepair at the start of his lease.
However, well advised tenants will have protected themselves by incorporating into the lease from the outset a “schedule of condition”. This will often consist of a series of photographs of the property and the lease will not require him to return the property to the landlord in a condition better than that evidenced by the schedule.
There are a number of further general principles which apply: the tenant will not normally be required to “improve” the property. Furthermore, repair does not generally speaking require “renewal”. However, these are very flexible rules in practice.
If it is the case that the tenant is vacating the property at the end of the lease (i.e., he is not taking a new lease) then the landlord is well advised to get on with the repairs. This is for two reasons: firstly, to satisfy the Court (should the case get that far) that the landlord actually intends to undertake the repairs; secondly, the Court will not be prepared to hold the tenant liable for loss of rent indefinitely.
A tenant should also consider his options well in advance of the end of the lease. He may well be able to arrange for repairs to be undertaken much more cost effectively than the cost which might be claimed by the landlord, for example.
The Statutory Cap
The law in relation to dilapidations claims has evolved by cases decided by the Courts. This is with one major exception, being the application of section 18 of the Landlord and Tenant Act 1927. This gives rise to the so-called “statutory cap” and was enacted to protect tenants against excessive claims by landlords.
The Act works in two ways:
1. The landlord’s claim is generally limited to the difference in value between the property “in repair” and “out of repair” according to the terms of the lease, even if the cost of the dilapidations is significantly greater than that difference (“limb 1”).
2. If it is the landlord’s intention to pull down or make major structural changes to the property which would render the repairs obsolete, then the tenant will not be liable at all (“limb 2”).
The operation of limb 1 is a matter of great debate in the Courts. However, as a matter of tactics a tenant will often seek to obtain an early valuation as part of negotiations. As to limb 2, the intentions of the landlord are a matter of evidence and it is important that the landlord has thought out his plans well in advance.
It is also important to understand that limb 1 does not apply to a tenant’s covenant to reinstate alterations to the property, or to a covenant merely to redecorate. It is limited only to repairs, a matter which is often forgotten.
There is now a formal Court protocol which the parties must follow for dilapidations claims.
The Protocol provides that a landlord should serve a formal schedule of dilapidations within 56 days of the end of the lease. The schedule will be prepared by the landlord’s surveyor following an inspection of the premises and with regard to the repairing covenants in the lease. It should be divided in to repair, reinstatement and redecoration.
It is best practice for a landlord to serve the schedule prior to the lease coming to an end. However, the precise timing may be a tactical decision for the landlord.
The tenant should respond to the schedule within a further 56 days. His surveyor should likewise inspect the premises for this purpose.
The parties and/or their respective surveyors are encouraged to meet during the course of the process and should do so in any event within 28 days of service of the tenant’s response. They are also obliged to consider alternative dispute resolution, most often by the appointment of a mediator.
Only once the Protocol procedure has been exhausted should the landlord commence Court proceedings and if he does so prematurely he may be penalised by the Court in relation to the costs of the proceedings. In the majority of cases, the tenant will be liable for the cost of dilapidations to some degree, and so tenants are well advised to make an early offer of settlement.
Both a landlord and a tenant should consider their position at an early stage and not simply wait for the lease to expire before taking any action.
Furthermore, the parties should make sure that they understand what the repairing covenants in the lease actually require and take advice if necessary, not forgetting the application of the statutory cap.
If you have leases which are due to expire or you are planning to give notice, we would recommend you talk to us first.
Pease contact Chris Longden Director Dispute Resolution team today for further advice.