In England and Wales, Dilapidations refer to the mechanism by which Landlords can claim damages directly attributable to the state of disrepair or neglect of a Demised Property. Typically, dilapidations claims are utilised in the context of commercial lease agreements.
The term “dilapidated” is often used to describe the condition of a property at the end of a lease when a tenant is required to return the property to the Landlord in accordance with the terms of the agreed Lease, or to pay for any necessary repairs, re-decoration and/or reinstatement, the form of damages.
Tenant’s Responsibilities Under English Law
Under English law, commercial tenants are typically responsible for repairing and maintaining the leased property (Demise) during the term of the lease. This is often referred to as being a Full Repair and Insuring Liability. This includes keeping the property in good condition, making necessary repairs (including maintenance), and returning the property to the landlord in strict accordance with the terms of the Lease, with reasonable wear and tear excepted.
When a Tenant vacates a property at the end of a lease, the landlord has the right to inspect the property and identify any repairs or improvements that are necessary. A qualified Surveyor will usually inspect the property and compile a list of breaches. This process is known as a “dilapidations claim.”
The breaches must be relevant to the agreed Lease. These are referred to as being a breach of covenant. In most standard leases, a typical covenant (for example) may obligate the Tenant to Keep the Demised Premises in good and substantial repair and condition.
The Dilapidations Claim Process
When this covenant has not been adhered to, there may be a case to present a claim for Dilapidations.
The landlord is free to serve a Schedule of Dilapidations on the Tenant, either after the term has come to an end, or during the last few months of the term, depending on the specific circumstances.
It is also possible to serve an Interim Dilapidations on a Tenant, depending on specific qualifying criteria.
Obligations Under Dilapidations Claims
The Schedule of Dilapidations will be drafted to outline the repairs, re-decoration and any reinstatement of alterations that are required in order to comply with the terms of the Lease, and the associated costs. The Landlord will procure a Chartered Surveyor to conduct this process.
The most common types of obligations required under dilapidations claims include:
- Repairing or replacing damaged or worn fixtures and fittings
- Painting and decorating all previously painted surfaces
- Repairing or replacing damaged or worn or damaged roofing, guttering, and other external features
- Removing any alterations or improvements made by the tenant
- Cleaning the property
- Providing Vacant Possession
The tenant is then responsible for carrying out the repairs or for paying for the cost of the repairs to be carried out by the landlord.
Disputes and Negotiations
Dilapidations claims can very often be a contentious issue between Landlords and Tenants, as the cost of remediating breaches of covenants can be substantial and the parties may disagree on what constitutes “reasonable wear and tear.”
Landlords often take a more aggressive approach to the Dilapidations process, identifying more breaches than necessary in order to maximise the cost of repairs and the compensation payable. Conversely, Tenants may argue that the condition of the property is not as bad as the landlord claims, or that any repairs required are the result of normal wear and tear.
There is also a genuinely valid argument with regard to the actual loss in relation to the condition of the property when compared to the wider market. This is referred to as the Diminution in Reversionary Interest. Essentially, the claim for damages cannot exceed the actual losses incurred as a result of disrepair. It is also argued that works cannot be claimed for that are to be superseded by any resultant works of the Landlord (re-development, for example) A comprehensive Section 18 Valuation is required in this regard.
To avoid disputes and the potential for costly legal proceedings, it is important for both Landlords and Tenants to have a clear understanding of their responsibilities under the terms of the Lease and for tenants to keep the property in the condition required by the Lease.
Regular inspections and maintenance of the property can help to identify and address any issues before they become major problems. It’s also advisable for tenants to document the condition of the property at the start of the lease and to keep records of any repairs or maintenance carried out during the term of the lease (see our blog on Schedule of Condition).
In many cases, Tenants are able to negotiate a “dilapidations settlement” with the Landlord, in which the tenant pays a lump sum in lieu of carrying out the repairs. This is often referred to as being a Full and Final Settlement and can often be a cost-effective solution for both parties and can avoid the need for costly litigation.
Having a Chartered Surveyor to advise you in this regard can very often save both parties needless expenditure of money and time.
Speak to one of our dilapidations experts at Trinity Surveyors today to see how we can help.
