A guide to Dilapidation disputes and claims
Dilapidations claims arise when a tenant fails to meet their obligations to repair, reinstate, or redecorate commercial premises as set out in their lease. These claims are most often pursued at the end of a lease, but can also arise during the term of a lease, often in connection to breakclauses or with Interim Schedules of Dilapidations.
What are the tenant’s obligations?
A tenant's obligation regarding dilapidations is to repair and maintain a property as outlined in the lease agreement. This typically involves restoring the property to its original condition and addressing wear and tear beyond reasonable use. Exactly what is required varies between leases, but in general this will involve fixing damage, redecorating, and restoring any alterations made during the tenancy, known as reinstatement. The landlord may issue a Schedule of Dilapidations towards the end of the lease that details the required works and associated costs.
Why do dilapidations disputes arise?
Most dilapidations disputes are due to disagreements over interpretation of the leases clauses, the condition of the property, the costs of the remedial work, or procedural failures. However, dilapidations are also sometimes used tactically by landlords to gain leverage in lease renewal or exit negotiations.
Interpretation disagreements
Interpretational disagreements stem from a lack of clarity in the lease over the exact definition of “fair wear and tear” or what would be an improvement versus a repair. For example, updating an outdated lighting or heating system with something more modern and functional may be seen as “repair” by a landlord which would be covered by the lease and paid by the tenant but considered an “improvement” by the tenant, which would then be a cost borne by the landlord. It is critical for both parties to be as clear as possible from the outset as to the exact definition of any terms within the lease to avoid these ambiguities.
Disagreements about the condition of the property
Property evaluations can differ wildly between surveyors, and so it can be common for a surveyor used by a landlord to come to completely different conclusions to one used by a tenant when assessing the same issues facing a property. Moreover, it can sometimes be unclear exactly what condition the property was in at the start of the lease unless both parties take photos and carefully discuss the property’s condition at the time. Some leases may include clauses defining the surveyors to use in dilapidation discussions to avoid these disagreements.
Cost disagreements
Even when both parties agree on the works that should be done to restore the property, there can be significant discord when it comes to the cost of this work. These disagreements could be down to whether an issue should be patched up, which would be cheaper and so preferred by the tenant, or whether the root cause should be resolved, which is preferred by the landlord. And even if there is agreement as to the solution, different contractors can charge significantly different rates. If a tenant wants to limit their costs, they should complete any remedial work before the end of their lease where they can choose their own contractors.
The total costs landlords can claim are limited by Section 18(1) of the Landlord and Tenant Act 1927, in that their recoverable damages are limited to the diminution (reduction) in the property's value caused by the disrepair. This area of law is particularly pertinent when the landlord plans to redevelop or demolish a site at the end of the lease or when the proposed release would be superseded by other necessary works.
Procedural failures
Without careful preparation it can be easy for either party to miss deadlines or fail to comply with the relevant regulations and protocols. These can lead to disagreements over dilapidations.
How landlords can prepare for a dilapidations claim
To prepare for a dilapidations claim, landlords should:
Prepare a clear and precise lease to avoid any misunderstandings.
Consider instructing a surveyor 6-12 months before lease.
Serve an interim schedule to allow tenants to remedy issues before vacating to help them save on costs.
Conduct prompt inspection upon lease end and serve a properly quantified terminal Schedule of Dilapidations.
Ensure the schedule complies with the Dilapidations Protocol requirements.
Regularly inspect during the lease term and enforce interim repairs to prevent claim value reduction.
Establish dialogue with the tenant at least 12 months before lease to establish each party’s position.
Maintain good records and consider the tenant's financial stability when pursuing claims.
Ensure claims are realistic, quantified and focused on genuine breaches.
How tenants can prepare for a dilapidations claim
To prepare for a dilapidations claim, tenants should:
Query any lease conditions that are not clear or precise and seek legal advice over any potential areas for disagreement.
Thoroughly document the condition of the property at the start of the lease.
Start putting money aside for the repairs every month from the start of the lease to help spread the cost.
Maintain the property and keep it in a good state of repair.
Establish dialogue with the landlord 12 months before lease to establish each party’s position.
Maintain good records for any works completed during the lease.
Consider commissioning an independent survey to identify issues early.
Complete any necessary remedial works while still in occupation (often more cost-effective)
How to save money on dilapidation claims
If you have a lease coming to an end then finding the right contractor is key to saving money on the remedial works. Landlords can avoid disagreements with the tenant over the cost of repairs by using a competitively-priced dilapidations speciaist firm. Meanwhile, for tenants, contracting with such a firm before the end of their lease can avoid the possibility of their landlord selecting a more expensive option and passing along the costs.