Unravelling the Mystery of Dilapidations

November 22, 2017 10:16 am - Categorised in: ,

The issue of dilapidations can be a mystery for both landlords and tenants.

Dilapidations is the claim made for damages by a landlord from a tenant based on the repairing obligations set out in the terms of a commercial lease. Essentially, a landlord of a leased property may believe works are required by the tenant in order to return the property into the state of repair and condition as written within the lease. In most cases, it is enforced when the lease comes to an end.

Most tenants who rent commercial property are likely to have accepted a cause when entering a lease to keep or return the property in “good and substantial repair and condition”, whether they are aware of it or not. Right from the outset we encourage tenants to familiarise themselves with their lease so they are not caught unaware. Even where there is it a relatively short term lease, we have found cases where there can be serious repairing and financial implications for a tenant.

Schedules of Dilapidations

In many cases of commercial property, landlords and tenants will agree what repairs are required, who will carry these out and over what timescale. This is known formally as the ‘schedules of dilapidations’.

We do come across cases where schedules of dilapidations have been inflated by a Landlord who feels hard done by. For example, because a tenant has exercised a break right (to terminate the lease early) and they are left needing to find a new tenant.

In most leases, the tenant is obliged to return the property in “good and substantial repair and condition”. However, this does not mean in “perfect” condition, although some landlord’s surveyors seem to think this way! Tenants should be aware that although they may have left the property in a better condition than it was in when they took over the property that is not the demanded criteria. The question is simply: was the property left in “good and substantial repair and condition”?

In some cases, the landlord may be claiming for works above and beyond the ‘good and substantial repair and condition’ test. In other cases the works claimed may be unnecessary – they are the landlord’s wish list and not works required by the terms of the lease.

In addition landlords cannot claim more than the amount by which the value of the landlord’s interest in the property is reduced by the alleged disrepair. Some items of repair may be so superficial that the value of the landlord’s interest is not diminished by any meaningful extent.

Tenants have to weigh up whether to try and produce a counter-schedule themselves or whether to engage a firm of surveyors experienced in this area.

Although there can, at least initially, be a contrast between the amount claimed by the landlord and the amount admitted by the tenant there is a set procedure – the “dilapidations protocol” with which the parties are obliged to follow to try and resolve the dispute. This means that very often a compromise figure is reached which avoids the cost of court proceedings for both sides.

Seeking Professional Advice

If you are considering entering into a commercial lease, we recommend you seek advice on the terms from the outset. In some cases liability for dilapidations can be limited to the state of the property at the beginning of the term through the production of a Schedule of Condition. Seeking professional advice at the start can avoid complications later and help put you in the best possible position when the lease comes to an end.

If you would like to discuss more about this, please do not hesitate to get in touch with a member of our commercial property team.

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About Simon Hale

Simon Hale is one of our directors, and leads our commercial property team here at Ellis-Fermor & Negus.

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