Dilapidations Protocol

A state of disrepair. Repairs required usually at the end of a lease or tenancy.

Understandably, landlords want their properties returned to them in a good condition when a lease expires and the tenant moves on. They want to ensure the the property is marketable to prospective future tenants.

Repairing covenants for the property can be found in the lease itself. This covenant will vary depending on the type or part of the building being let. Where the whole of a single building is being let then the tenant will usually be liable for all repairs. If only part of a building is being let then often tenants will be responsible for the internal repairs and decoration of their part with the landlord being responsible for external and structural repairs. His costs will usually be recovered by way of a service charge to all tenants within the building.

Tenants should keep an eye out for ‘put and keep’ repair covenants. These oblige a tenant to put the property into repair even if it is out of repair at the start of the lease. Nowadays landlords and tenants will often agree on a schedule of condition of the property before signing the lease to protect the tenant from having to repair parts of the property that are already in a state of disrepair. Note that landlords cannot usually require tenants to carry out improvement works to the property to make it more marketable to future tenants.

As well as the lease, you should consider other documents such as licences granted for alterations to the property and any deeds of variation which may apply to the lease.

There are many issues landlords/tenants should take into account. CWJ can advise you on these and the best approach to take as the lease draws to a close. Below are some of the key considerations.

Landlord

The landlord should consider his plans for the letting of property at an early stage prior to the lease expiring. Should he wish to re-let or sell the property then it would be sensible to serve the schedule of dilapidations early, to give the tenant more time to carry out the works. Some landlords may however, wish to retain control and carry out the works themselves. In which case, the landlord should wait until the end of the lease before serving the schedule. A landlord can then negotiate with the tenant a financial settlement to fund the works. A landlord should complete the repairs sooner rather than later to avoid lost rent. Lost rent can be claimed from the outgoing tenant, but this will be reduced if the landlord has unnecessarily delayed carrying out the works.

If the landlord envisages having to make a damages claim against the tenant for failure to repair, then their plans for the property will become relevant when considering the amount they should expect to receive. If the landlord’s intention is to demolish or significantly alter the property then the landlord’s actual ‘damage’ through the tenant’s failure to repair will be far less. Damages, by law, cannot be more than the difference in value of the property in its condition at the end of the lease, and its value had the repairs been carried out. Landlords will often try to use a schedule of anticipated costs of the repairs as evidence of the reduction in value of the property. Again however, the court will look to the landlord’s intentions for the property at the expiry of the lease, when deciding how much weight to give that evidence.

Tenant

Tenants should try to be proactive and seek advice on the condition of the property and how it affects its value. Obtaining a report would be sensible. If the value of the property is affected greatly by its condition then commencing repairs early will enable the tenant to control cost and lessen the risk of a future claim by the landlord. On the other hand, if the property’s condition has little effect on its value then the tenant can save the cost of carrying out the repairs and rely on that report if the landlord tries to claim damages at a later date.

Taking action

There are remedies available to a landlord for a tenant’s breach of a repairing covenant. More often than not landlords will want to claim damages. This remedy is available once the lease has ended. As discussed above, the amount of damages a landlord will be entitled to will depend on many factors.

Landlords can seek forfeiture of the lease during its term for breach of a repairing covenant however, there is a strict procedure that must be followed in order to do so.

Landlords under some leases, can enter the property themselves during the term, carry out the repair works and then recover the costs from the tenant.

 In rare situations, landlords can require specific performance from the tenant.

If you are a landlord and wish to make a dilapidations claim against the tenant at the end of the lease then you will need to consider the Pre-Action Protocol for Claims for Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy (the ‘Dilapidations Protocol’).

Below is a basic overview of the procedure:

1. Landlord should serve a schedule of dilapidations within a reasonable time on the tenant (generally not more than 56 days after end of tenancy).
2. Landlord should send a quantified demand within the same timescale as sending the schedule of dilapidations
3. The landlord and tenant (or their legal advisors) should meet, preferably before the tenant prepares a response to the quantified demand, on a ‘without prejudice’ basis.
4. Tenant should respond to the quantified demand within a reasonable time (not more than 56 days from the service of the quantified demand).
5. Parties should consider an alternative dispute resolution procedure such as mediation.
6. If at this point the issues are not resolved, then the parties should carry out a ‘stocktake’ of the issues in dispute.

Both landlords and tenants should try to remain open, honest and realistic with each other at all stages of the process in order to try and seek an amicable resolution to disputes over dilapidations.

If the dispute is not resolved  then you can speak with Jill Lawton on 01689 887855 or by email jill.lawton@cwj.co.uk who will be more than happy to advise and guide you to a swift and pain free resolution.