The main focus of tenants and landlords when negotiating terms for a new lease is upon the financial payments to be made throughout the lease term, such as rent and service charge. Quite often the parties do not realise that failure to understand and deal with dilapidations correctly from the outset, can have serious financial implications in the future.
Dilapidations are essentially the breach of repairing/decorating obligations within the lease. A claim for dilapidations is made by the landlord (generally shortly before or after the lease term expires) who carries out a survey of disrepair at the property and then serves a schedule of dilapidations on the tenant, detailing the extent of disrepair and either the works that should be carried out by the tenant or (more usually) the sum required by the landlord in order to remedy such disrepair.
The approach taken in issuing or responding to a dilapidations claim can be crucial and the following considerations should be made:
- Review the lease and all associated documents from the outset. Ensuring that a repair clause is in fact favourable to you is often the first line of defence.
- Is there a schedule of condition? This will accurately record the original condition of the property and reduce disputes.
- Instruct a surveyor jointly with the landlord to do a joint inspection - this will cut down on costs as you will not have to obtain your own separate survey.
- Towards the end of a lease try to find out what the landlord’s intentions are for the building. By virtue of section 18 of the Landlord and Tenant Act 1927 (section 18) the landlord cannot claim for breaches of repair where it intends to redevelop or demolish the property.
- Note that by virtue of section 18 the landlord cannot claim disrepair costs that exceed the difference between the:
- market value of the property where it is restored to good condition; and
- market value of the property if it is left in its current state.
- If you have already received a claim which is high and seems disproportionate, it will generally be cost effective to instruct an expert surveyor to negotiate for you (we can recommend).
- Review the lease and all associated documents from the outset (including schedules of condition as referred to above).
- Consider both yours and the tenant’s future intentions for the property and plan your approach to the dilapidations claim. For example:
- Do you want to re-let as soon as possible or retain the tenant? If the former applies, you may want to consider serving the dilapidations schedule before the end of the term so that the tenant can repair the property before the term ends.
- If alternatively you want to retain the tenant, you could try to use the schedule as a bargaining tool. For example you could agree that they will only have to pay a certain percentage of the dilapidations in return for the tenant accepting a new lease.
- Do you want to retain control of the works yourself, thus strengthening your ability to recover the costs of the same? If so, you may want to serve the schedule after the term has ended.