Commercial premises and Dilapidations: Avoiding disputes before they become expensive

A practical guide for commercial landlords on why dilapidations disputes arise, how they can be reduced, and when to seek legal advice.

Why dilapidations matter

Dilapidations are, in simple terms, breaches of the tenant’s obligations to repair, decorate, maintain or reinstate commercial premises under the terms of a lease. They are often thought of as an end-of-lease issue, but in reality they can begin much earlier, sometimes from the moment a tenant takes occupation without a clear record of the property’s condition.

For landlords, a dilapidations dispute is rarely just about chipped paint or worn flooring. It can affect re-letting prospects, sale value and cash flow. The most common problem that occurs is a landlord is faced with unresponsive tenants (and generally the larger the commercial tenant, the less responsive they are) and time delay. This increases clients’ liabilities for rates and leads to loss of rent.

For tenants, it can come as an unwelcome surprise at precisely the time when they are already dealing with the cost and disruption of moving premises.

When do dilapidations disputes arise?

Most disputes arise at, or shortly before, the end of a commercial lease. The landlord inspects the property, usually with the assistance of a surveyor, and serves a schedule of dilapidations setting out the alleged breaches and the cost of putting them right. The tenant may disagree with the works claimed, the standard of repair required, the costs, or whether the landlord is entitled to recover those costs at all.

They can also arise during the lease. If a building is deteriorating and the tenant is not complying with repair obligations, a landlord may need to act before the problem becomes worse. Interim action can be particularly important where disrepair is affecting neighbouring occupiers, insurance, structural integrity or the landlord’s ability to manage a wider property portfolio.

Break clauses are another frequent flashpoint. Where a tenant wants to bring a lease to an early end, the lease may require strict compliance with repair, reinstatement or vacant possession conditions. If those conditions are not met, the landlord and tenant may quickly find themselves in dispute about whether the break has been validly exercised and what compensation is payable.

Why do disputes happen?

Many dilapidations disputes are caused by uncertainty. The lease may be clear to a lawyer, but less clear to the people managing the property day to day. Words and phrases such as ‘repair’, ‘keep in repair’, ‘yield up’, ‘decorate’ and ‘reinstate’ can carry significant legal and practical consequences. A tenant may believe it only needs to leave the premises tidy. The landlord may expect the premises to be returned in a much more substantial state of repair.

The absence of good evidence is another common cause. If there was no schedule of condition when the lease was granted, the parties may have very different views about what condition the premises were in at the start. Photographs, survey reports, licences for alterations and correspondence can become crucial when trying to work out whether the tenant is responsible for a particular item.

Disputes also arise because commercial plans change. A landlord may intend to refurbish, redevelop or reconfigure the premises after the tenant leaves. In those circumstances, arguments may arise about whether some claimed repair works have been superseded by the landlord’s own plans. The recoverable loss may not always be the same as the full cost of every item listed in a schedule.

What can landlords do to prevent problems?

The best time to think about dilapidations is before the lease is signed. A carefully drafted lease should set out the tenant’s repairing obligations, decoration requirements, reinstatement obligations, rights of inspection and any limits created by a schedule of condition. If the landlord expects alterations to be removed at the end of the term, that should be dealt with clearly in the lease and any licence for alterations.

A good schedule of condition can save a great deal of argument later. It should be detailed, dated and supported by photographs. Vague descriptions are rarely helpful when, several years later, the parties are trying to determine whether a cracked floor, stained ceiling tile or damaged loading bay door was already present.

Landlords should also consider including a term within a lease which allows them to enter the premises and carry out repairs during the lease term if the tenant fails to do so. This is useful in avoiding arguments later that the costs of repairs are not recoverable if the tenant raises what is known as a ‘Section 18’ Defence to a claim for dilapidations.

Landlords should also keep records throughout the lease. Inspection notes, maintenance correspondence, photographs, consents for alterations and discussions about defects can all help establish what happened and when. Regular inspections, carried out reasonably and in accordance with the lease, may identify issues before they become substantial claims.

Communication helps too. If a landlord is concerned about the condition of the premises, raising the issue early can prevent positions becoming entrenched. A tenant who is told about disrepair during the term of the lease may be able to carry out works more cost-effectively than after the lease has ended. Early dialogue can also help both sides understand whether the landlord’s future plans for the premises are likely to affect the scope or value of any claim.

When is legal advice worthwhile?

Legal advice is worth considering before the lease is completed, particularly for landlords granting a new lease of valuable or specialist premises. Getting the repair and reinstatement provisions right at the outset is usually far cheaper than arguing about them at the end.

Advice should also be taken when a tenant is approaching the end of the term, when a break notice is being considered, or when a schedule of dilapidations is being prepared or received. At that stage, solicitors and surveyors often work together: the surveyor deals with the building condition and costings, while the solicitor considers the lease, liability, procedure, strategy and recoverability.

It is especially sensible to seek advice where the figures are significant, the lease wording is unclear, the tenant disputes responsibility, redevelopment is planned, or there is a risk that a break clause may not have been validly operated. The earlier those issues are identified, the more options are usually available.

A practical approach

Dilapidations disputes are often avoidable, but they require planning. Clear lease drafting, a proper record of condition, regular inspections and early communication can make a substantial difference. Where a dispute does arise, a pragmatic approach is usually best: understand the lease, gather the evidence, take appropriate surveying input, and consider the commercial outcome as well as the legal position.

For landlords, the aim is not simply to produce the longest possible schedule. It is to protect the value of the property, recover genuine losses where appropriate, and avoid unnecessary delay in putting the premises back into productive use.

If you are concerned about the condition of commercial premises, or you have received or are considering a dilapidations’ claim, early advice can help you to understand the strength of your position and the most cost-effective way forward.

For individual advice, contact us using the enquiry form or contact any of our offices – in King’s Lynn, Ely, Downham Market, March and Wisbech - and ask to speak to the property disputes team.

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.