Dilapidations claims at the end of a lease

Dilapidations are the repairs and reinstatement which a tenant of commercial property owes the landlord under the lease. The argument normally comes at the end of the term, when the landlord’s surveyor produces a schedule of everything said to be wrong with the building and puts a price on it. Obviously a landlord wants to maximise the money recovered and a tenant wants to minimise what it pays, and the figure in the schedule is often a good deal higher than the landlord can actually recover.

I don’t act on dilapidations disputes myself. Several of my colleagues at Nexa Law do, for landlords and for tenants, and when you get in touch I’ll choose the right one for the matter, taking account of what it involves, their capacity and their pricing. They then act for you and quote their own fee. There’s more about my Nexa colleagues here.

What the lease requires

The starting point for any dilapidations claim is the lease, and in particular the repairing covenant, the decorating covenant, the obligation to reinstate alterations and the yielding up clause. If a schedule of condition was attached when the lease was granted, the tenant usually doesn’t have to hand the premises back in any better state than it records. A tenant is generally only required to meet the standard the lease sets and isn’t expected to improve the building.

Dilapidations can also come up during the lease (an interim schedule), and they are particularly important where a tenant wants to use a break clause that is conditional on complying with the lease.

The statutory cap on what a landlord can claim

Section 18(1) of the Landlord and Tenant Act 1927 limits damages for breach of a repairing covenant in two ways. First, the damages can’t exceed the amount by which the value of the landlord’s interest has been reduced by the disrepair. So if the repairs would cost £100,000 but the building is worth only £40,000 less because of them, the claim for those repairs is capped at the lower figure. Second, nothing is recoverable for disrepair if the premises are going to be pulled down, or altered so much that the repairs would be pointless, at or shortly after the end of the tenancy.

The second limit is easily overlooked, as a landlord with plans to redevelop or strip out and refit may have a much smaller claim than the schedule suggests, and a tenant’s solicitor will want to know what the landlord actually intends to do with the building. The cap applies to repair and doesn’t apply in the same way to other items, such as reinstating alterations, which is one reason schedules are argued over line by line.

The Dilapidations Protocol

There’s a Pre-Action Protocol for dilapidations claims under the Civil Procedure Rules, which sets out what should happen before anyone goes to court. In outline, the landlord sends a schedule of dilapidations and a quantified demand, generally within 56 days of the tenancy ending. The schedule has to be endorsed by the landlord’s surveyor, confirming that the works are reasonably required and the costings reasonable. The tenant then responds, usually within 56 days, and the tenant’s response is endorsed by its own surveyor. The two sides are encouraged to meet, typically within 28 days of the response, and to consider settling without a court claim.

Before issuing proceedings the landlord is expected to quantify its loss properly, either with a formal diminution valuation or an account of what it has actually spent. A court can take a failure to follow the Protocol into account when it deals with costs.

In practice the surveyors do much of the negotiating and most claims settle between them. A solicitor is usually brought in once the surveyors have tried and failed to resolve matters, when there’s a legal argument about what the lease requires, or when the section 18 cap is likely to reduce the claim.

Dilapidations on a business sale

Dilapidations also come up on business sales, which is my own work. If you’re selling a company that occupies leased premises, the buyer will want to know what the liability at the end of the lease is likely to be, and it gets more awkward where the lease is in your own name or your pension owns the building. I’ve also written a longer piece on dilapidation claims generally.

What to send

• The lease, with any schedule of condition and licences for alterations
• The schedule of dilapidations and quantified demand, if served, and the date
• Any surveyor’s report or response
• The date the lease ended or will end, and what you know of the landlord’s plans for the building

Next steps

Get in touch with the documents and the dates. Whether you’re a landlord or a tenant, in Leicester or elsewhere in England and Wales, I’ll introduce you to the colleague best suited to it.