How to avoid dilapidations disputes

One of the most contentious and often very costly elements of a commercial property lease relates to claims for dilapidations.These arise if a tenant fails to maintain a commercial property according to their lease agreement, and can be made by the landlord during or towards the end of a lease, or after the lease has ended. And they can be expensive. The amount claimed can often be more than the cost of 12 months’ rent, including the costs of reinstatement, redecoration and repair as well as any legal fees.

Approximately six months before the end of a lease, a landlord will send the tenant a Schedule of Dilapidations which sets out all the repairs and refurbishments required under the lease. If the tenant fails to complete these repairs by the end of the lease, they will face a dilapidations dispute.

How can tenants avoid dilapidations disputes?

For tenants, the keys to avoiding dilapidations disputes are cognisance and preparation.

It is essential for a tenant to understand their obligations set out in the lease, in particular the dilapidations clauses. If they are unclear over any aspect of the lease or the ramifications of failing to meet their obligations then they should seek professional advice before signing the contract to avoid problems in the future.

For most commercial leases, when a Schedule of Dilapidations is sent six months before the end of the term, this should provide sufficient time for the tenant to complete any necessary repairs and reinstate the property to its required state. The landlord will set out any repairs and refurbishments needed in this document, but tenants should already know their obligations under the lease and so can financially and practically prepare earlier to avoid disagreements with the landlord and any associated expenses.

It is generally more cost effective for tenants to carry out any works before lease expiry in order to reduce their potential liability on termination, with some tenants saving up to half the cost of the remedial works by organising it themselves.

Some leases may include clauses relating to Interim Schedules of Dilapidations. These are sent to the tenant at various points throughout the lease and serve as a reminder of their responsibilities and encouragement to address maintenance problems early on, potentially preventing more extensive and costly repairs later. However, even without these clauses, it is generally advisable for tenants to closely monitor the state of repair of their building throughout the lease and fix any issues when they arise to help spread the cost of repairs throughout the term.

It is also advisable for tenants to build up a contingency fund throughout the lease term to cover the cost of expected repairs and refurbishments. Even well-maintained buildings may need significant repairs and refurbishments at the end of a lease, so having the funds available to organise contractors to complete these works when they are required should help ease the financial burden.

What can landlords do to prevent dilapidations disputes? 

For landlords, it is legal clarity that helps prevent dilapidations disputes.

Landlords should ensure their lease agreements are clear and precise. If a landlord requires the carpets to be replaced or the walls painted a specific colour and brands of paint at the end of a lease then these requirements should be specifically stated within the dilapidations clauses. 

Even the most minor cosmetic changes to a property made by tenants, such as adding branding to the walls, will require time and money to put right at the end of a lease and can delay a future tenant from moving in. It is always best for a landlord to be as specific as possible about exactly how they want the property left at the end of the lease to avoid any confusion.

Lastly, if a landlord has any concerns that a tenant may not maintain the property to an acceptable standard, or if the property has unusual maintenance requirements that need to be regularly addressed then it would be beneficial to issue Interim Schedules of Dilapidations to protect their interests. The right to issue interim schedules should be set out in the lease along with the ramifications for tenants who do not comply with the terms, including the scale of damages and any potential for a legal claim in the courts.

What remedies are available to landlords for a dilapidation claim?

Landlords have four potential remedies available to them for a dilapidation claim depending on the specific wording of the lease agreement. These are:

Monetary damages

Monetary damages provide the landlord with financial redress for the repairs, refurbishment, and any delays to finding new tenants for the property.

Specific performance

In certain circumstances, a landlord may find it appropriate to ask the court to compel the tenant to carry out any required remedial works themselves.

Forfeiture

If the right to forfeit was clearly expressed in the lease agreement, the landlord has the right to terminate the lease when it has been breached, such as by the tenant failing to carry out maintenance of the property.

Entry to the premises

If explicitly set out in the lease, the landlord has the right to enter the property during the lease term to carry out repair works and then recover the cost of these repairs from the tenant.

Conclusion

Dilapidation disputes are not helpful for tenants, who could face a hefty bill, or landlords, who face delays in re-letting their property. To avoid these disputes, landlords should be clear in exactly what they want the tenant to do at the end of the lease to avoid confusion. Meanwhile, tenants should make sure they clearly understand their obligations set out in the lease and make sure they are prepared to complete any repairs and refurbishment to the property before the end of their lease.