Dilapidations: Getting the Best Result

Christopher Cuthbert
There is no greater headache for landlord or tenant than figuring out their dilapidations requirements at the end of the tenancy.

What are dilapidations all about?

When a tenant leaves leased premises, they must normally pay for, or remedy, any defects or disrepair. These defects and disrepairs are what we mean by dilapidations. The resolution of dilapidations is dependent on the individual lease, the legal precedents previously established and limitations imposed by statute. This is an often complex area of property law.

Dilapidations pose challenges for both tenants and landlords

When a lease comes to an end, there is usually a gap between the expectations of landlord and tenant. It’s a complicated area because there are a lot of variables and a certain amount of interpretation needed, to identify the difference between the building’s actual condition and its acceptable condition to satisfy the terms of the lease. The lease itself may not be completely clear. The most appropriate method of repair must be identified within the specific repairing covenants contained within the lease.

The most appropriate method of repair must be identified within the specific repairing covenants contained within the lease.

Most tenants struggle with accurately assessing their dilapidations liability. First, they want to know if they do indeed have liability under the terms of the lease. Are the landlord’s demands reasonable and ultimately lawful? Has the landlord suffered a loss as a result of the tenant’s failure to keep the premises in the condition required by the lease? Are the disrepairs identified and the remedial works requested accurately described and costed? It should be possible to determine a tenant’s dilapidations liability at any point in the lease term, but the figures are more realistic if prepared towards the lease end date.

Claims are on the increase

The economic climate has constrained the redevelopment of commercial property and landlords are currently less inclined to demolish buildings that are in disrepair. Getting the building in shape and re-let will be a priority, and landlords are more likely to pursue the tenant to extract the full amount due.

The number of dilapidation claims served by landlords against tenants has risen considerably in the last couple of years.

Tenants used to get away with more – that just doesn’t happen these days.

… but a confrontational dilapidations claim strategy is not always the best path

This is a potentially combative situation, where the landlord obviously wants the maximum remedy and the tenant wants to provide the minimum. Negotiation and flexibility should bring about a faster, smoother and cheaper resolution.

Take the money or let the tenant do repairs?

The property condition must be reinstated according to the terms of the lease, but there are often different ways of achieving this. In the current market some landlords would rather have the cash equivalent to the value of the repairs and will naturally want prompt payment. Tenants can avoid this situation by leaving the premises in good repair at the end of the lease.

Formulating the best value exit strategy

A surveyor is usually needed to establish the condition of the premises and to report on the work needed to remedy the disrepair. My team at Faithful+Gould works on many dilapidations cases, for both public and private sector landlords and tenants.

We are familiar with the latest procedural protocol and the application of the relevant case law, and can represent clients at arbitration or litigation.

We are familiar with the latest procedural protocol and the application of the relevant case law, and can represent clients at arbitration or litigation. It’s always a good idea for landlords to take advice on property acquisition, and to consider the benefits of an interim dilapidations strategy for longer leases, rather than relying solely on terminal dilapidations. A terminal schedule of dilapidations will not make up for inadequate management of the property during the lease term.

Helping tenants to strategically manage their leasehold obligations

We also help tenants, including large portfolio holders, to strategically manage their leasehold obligations, aiming for the best commercial outcomes throughout their occupation. Ideally this will include inspecting the property prior to the start of the lease, identifying the tenant’s risks and considering how best to contain these.

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