Dilapidations: what landlords need to know

Dilapidations are one of the most significant issues landlords can face when a commercial lease comes to an end. Understanding a tenant’s obligations and the remedies available can make a substantial difference to the value of a claim and the landlord’s ability to re-let the property.

What are dilapidations?

“Dilapidations” refers to breaches of a tenant’s lease obligations relating to the physical condition of the property. These obligations are usually set out in the lease and include covenants to:

• repair and decorate the property
• comply with statutory requirements
• reinstate any alterations made to the property by the tenant
• return the property to the Landlord in a specified condition.

However, in addition to the lease itself, it is also important for landlords to review any licences to alter, deeds of variation and schedules of condition that relate to the tenancy as the provisions of these documents may affect the tenant’s obligations.

Key considerations for landlords

When considering a dilapidations claim, landlords should:

1. Understand the full extent of the tenant’s obligations by reference to the lease and any ancillary lease documents.
2. Begin considering dilapidations well before the end of the lease term. Serving an “interim” schedule of dilapidations towards the end of the lease term can encourage the tenant to carry out remedial works before vacating, making it quicker and easier for a landlord to relet the property. Once the lease has ended, the landlord’s remedy for disrepair is then generally limited to a claim for damages. A schedule of dilapidations served after the end of the lease term is known as a “terminal” schedule of dilapidations and should normally be served within 56 days of the lease ending in accordance with the Dilapidations Protocol, although it is possible for the lease to specify a different time period. The schedule of dilapidations should identify the alleged breaches, the works required to remedy them and the estimated costs for these works.
3. Assess whether to carry out the remedial works themselves or pursue a claim for damages. A landlord can choose whether to undertake the repair works themselves and try to recover the costs incurred from the tenant or to simply pursue a claim for damages. Completing the works themselves may improve the property’s condition and mean the property is ready for reletting quicker, but it also requires upfront expenditure by the landlord and there is no guarantee that all costs incurred for the works will be recovered from the tenant.
4. Understand the statutory limitations on damages imposed by section 18(1) of the Landlord and Tenant Act 1927. This provision limits damages for breaches of repairing covenants to the reduction in the value of the landlord’s building as a result of the disrepair. Damages may also be reduced or unavailable where the property is due to be demolished or substantially altered after the end of the lease, as this would effectively make the repairs unnecessary.

Practical steps for landlords

Early preparation and careful planning are essential. Landlords should review the lease and all ancillary documentation and consider the most appropriate strategy well before the end of the lease term. Instructing a specialist building surveyor to prepare a schedule of dilapidations and obtaining valuation advice at an early stage is also advisable.

Dilapidations and lease renewals

Dilapidations should also be considered where a lease is being renewed. If a renewal lease is completed without addressing breaches that have accrued during the tenancy, the tenant may effectively be released from liability for any existing disrepair because the repairing obligation under the new lease is assessed by reference to the condition of the property at the start of the renewal lease term. To preserve the landlord’s position, the parties can either:

1. Draft the renewal lease so the repairing obligation is assessed by reference to the condition of the property when the original lease was granted; or
2. Attach an agreed schedule of dilapidations to the renewal lease. Although this has time and cost implications for the renegotiation of the renewal lease, this is the recommended approach because it provides greater certainty and can help reduce the risk of future disputes regarding the property’s condition because the schedule provides clear evidence of the property’s condition at that time.

How can Fraser Dawbarns help?

The commercial property specialists at Fraser Dawbarns are well versed in all aspects of commercial leases, including dilapidations. Please contact any of our offices or complete our online enquiry form if you would like individual advice.

How To Contact Us:

To contact a member of our team, you can fill in our online enquiry form, email info@fraserdawbarns.com, or call your nearest office below. If you’d like to speak to a member of our team at one of our offices across Norfolk and Cambridgeshire, visit our offices page.

Wisbech: 01945 461456

March: 01354 602880

King’s Lynn: 01553 666600

Ely: 01353 383483

Downham Market: 01366 383171

This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances. Fraser Dawbarns LLP is always happy to provide such advice.