Dilapidations can be a confusing part of commercial tenancies and failure to understand them can be a concern for both landlords and tenants since no-one wants to be held responsible for damage they didn’t do. To provide more information about the topic, we’ve put together some key considerations and issues that tenants and landlords should bear in mind when managing dilapidations for a commercial property.

What Do Landlords Need to Consider?

Establishing the Extent of the Breach

Commercial leases typically grant the landlord (and authorized personnel) the right to enter the property for various purposes. To determine the extent of any breaches of the repairing covenant, the landlord usually needs to arrange for a surveyor to inspect the premises. The surveyor should document any breaches found in a schedule of dilapidations.

After the initial inspection, the landlord should re-inspect the property to see if the tenant has remedied any breaches or begun to do so. The critical date in a dilapidations claim is the lease expiry date, so it is advisable for the landlord to re-inspect soon after this date to identify any outstanding breaches and take photographic evidence of the premises’ condition.

Timing Issues: During the Lease

The tenant must be given a reasonable time to remedy a breach before the landlord can take action. What constitutes a reasonable time depends on the nature of the required repairs but will not be less than the period specified in the lease for complying with a repair notice. In some cases, the Leasehold Property Repairs Act 1938 applies, giving the tenant 28 days to serve a counter notice. If the tenant serves this notice, the landlord needs the court’s consent before taking action to forfeit the lease or claim damages for the breach.

Timing Issues: At the End of the Lease

In 2012, the Dilapidations Protocol introduced by the Property Litigation Association was adopted as a formal pre-action protocol in the Civil Procedure Rules. This protocol includes a recommended timetable for handling disputes, stating that the landlord should serve a schedule of dilapidations within a reasonable time after the lease term ends, usually within 56 days. The tenant should also be given a reasonable time to respond, typically 56 days.

What if a Tenant Breaches a Repair Agreement?

There are specific statutory restrictions on how a landlord can address a breach of a tenant’s repairing covenant. The landlord’s options depend on the lease terms and whether the lease has expired.

If the Lease is Still in Term

If the lease has not yet expired, landlords have several options. The landlord can end the lease, provided advance notice is given for non-rent breaches. Alternatively, many modern commercial leases include clauses that allow the landlord to enter the property, perform necessary repairs and then recover the costs from the tenant. Exercising this right is treated as debt recovery, not a claim for damages. They may also seek a court order requiring the tenant to carry out the repairs, though such orders are rarely granted.

At the End of the Term

Once the lease has ended, the landlord’s primary recourse is to file a claim for damages. For claims made during the lease, damages are calculated based on the diminution in the value of the reversion. This reflects the estimated loss in property value due to the tenant’s failure to comply with repair covenants, rather than the full cost of repairs. Dilapidations claims may also address breaches of other tenant covenants, such as decoration, compliance with statutory requirements, reinstatement of alterations and the removal of fixtures.

Minimising Dilapidations Costs for Both Parties

Since dilapidations can result in significant costs for both landlords and tenants, it’s essential to take proactive measures to minimise expenses. For landlords, maintaining detailed records of the property’s condition before and during the tenancy is essential, ideally with a Schedule of Condition report. Regular inspections, coupled with open communication with tenants, can help identify potential issues early on and prevent them from escalating. Implementing a comprehensive maintenance programme and promptly addressing any repairs can also go a long way in reducing dilapidations costs.

Tenants, on the other hand, should ensure they’re adhering to the lease terms and maintaining the property in good condition. Conducting thorough inspections at the beginning and end of the tenancy can help document the property’s state and mitigate potential disputes. It’s advisable to seek professional advice when necessary and address any maintenance or repair issues promptly.

Additionally, both parties can benefit from negotiating dilapidations settlements in good faith. Open communication, transparency and a willingness to compromise can often lead to mutually agreeable solutions, avoiding the need for costly legal proceedings. Engaging professional surveyors can also facilitate fair and impartial assessments, ultimately reducing the financial burden associated with dilapidations.

 

Dilapidations are a complex facet of commercial property leasing that demands careful attention from both landlords and tenants. It’s essential to thoroughly understand lease terms, engage in negotiations and seek legal advice when necessary. Proactively managing dilapidations helps commercial landlords and tenants maintain a cooperative relationship and safeguard their respective interests.

If you are or may become involved in a dilapidations dispute, please don’t hesitate to get in touch with us. We have a wealth of expertise in this area that can be crucial in helping you achieve a fair resolution.

What are Dilapidations?

Dilapidations is the term normally used for repairs required under a Lease.  Most commercial Leases in the UK place an obligation on the Tenant to undertake a variety of repairs, decoration and other express covenants which may include complying with Legislation, cleaning the Premises or reinstating any alterations at the end of the Lease.  Dilapidations is the term generally used for the works which a Landlord asks a Tenant to undertake either during the term, or at lease end.

The Difference Between Residential and Commercial Tenancies

In the UK the main difference between most residential and commercial agreements is that typically a Landlord would be responsible for the repairs to a residential property and the Tenant would be responsible for repairing a commercial demise. The exact terms of this are dependant upon the terms of the Lease, which is the Contract between the Landlord and Tenant.  The basic legal principles of any Dilapidations Claim is therefore based on Contract Law.

Record of Condition

There is often a requirement to record the condition of a building either prior to a Lease or before some construction work or access onto a property is made.  This is often referred to as Dilaps or Delaps although this would normally be called a Schedule of Condition.  This is a detailed record of the condition of the building and when used in a Lease can be very useful to limit a Tenants liability at the end of the term or illustrate works a Landlord is claiming.

What is a Schedule of Dilapidations?

A Schedule of Dilapidations is the document which the Landlord would prepare to identify the works required by the Tenant. This would typically identify why the Tenant is in Breach of the Lease, what Lease clauses they should comply with and the works a Landlord considers are necessary.  In some cases the Landlord may advise the Tenant of the cost of these works.  If served during the Term this is known as an Interim Schedule of Dilapidations, or in some cases a Repairs Notice.  If the Lease is about to end the document may be called a Draft Terminal Schedule of Dilapidations, and if the Lease has ended then the Landlord would be making the claim for Terminal Dilapidations.  The final claim is also known as a Quantified Demand.

Interim Dilapidations

If a Landlord is concerned over the condition of their property then under most modern Leases a Landlord can undertake an inspection, assess whether the Tenant is complying with the terms of their Lease and issue a Notice on the Tenant.  Depending upon the wording of the Lease, the Landlord may issue a Section 146 Notice or a Simple Repairs Notice which the Tenant must comply with.   In some cases if the Tenant does not comply, the Landlord can enter the property, undertake the work and claim back the cost from the Tenant.

Does the Landlord Have to Serve a Schedule of Dilapidations?

Overall there is no obligation on the Landlord to remind the Tenant of the works they should undertake under a Lease. It is the Tenants responsibility to read the Lease and undertake the works required by their Lease.  Under most Leases, a Tenant is required to reinstate any alterations they make and in some cases a Landlord must notify the Tenant if they require reinstatement.  This is not always the case and the Lease will often place the obligation on the Tenant to reinstate any alterations they have made.

How do you Assess the Standard of Repair?

This is something a lot of Tenants are unsure over, in particular if they are undertaking the work. The wording of the Lease will typically state the extent and quality of works required and in some cases this may be limited to the condition shown in a Schedule of Condition, which would record the state at the start of the Lease.  The age and character of the building is also important as the standard of repair on a new property may vary from a short term Lease on an older site, which may have been let many times.  A basic principle which is often followed is that a Tenant is required to undertake the repairs, to a standard which would be acceptable to a reasonably minded Tenant, having regard to the “age, character and location of the property”, on Lease commencement.

How do you Know What Work to Undertake?

Hopefully most Landlord’s would be helpful in advising the Tenant of the works which they consider needed by the end of the Lease.  In some cases a Landlord must notify the Tenant if reinstatement of alterations are required and in some cases the colour of decoration, the type of carpet or similar must be agreed with the Landlord.  If a Tenant is unsure or requires more detailed advice then it can be useful to prepare a Dilapidations Assessment.  This can be prepared by a Chartered Building Surveyor and it would be similar to a Schedule of Dilapidations. It would review the Lease, consider the Tenants obligations, assess the condition of the building and suggest the works which may be required.  This could be useful if a Tenants requires an early indication of work required.  It is also very useful to provide a future Dilapidations budget, in particular if required for accountancy purposes, where under FRS102 a Dilapidations Assessment may be required by Auditors to provide future provision in companies accounts.

Dilapidations Procedures

Procedures should be followed by both Landlord’s and Tenants when dealing with Dilapidation’s. In particular the Royal Institute of Chartered Surveyors provide useful guidance in the form of the RICS Guidance Note, Dilapidations in England and Wales, 7^th Edition.  It is also important to follow the Dilapidations Protocol, which is the Pre-Action Protocol for claims for damages in relation to the physical state of a property and this is published by the Property Litigation Association.

What do you do if you Receive a Claim from the Landlord?

Whether received during or after a Lease, the first step would be to check the terms of your Lease or similar agreement to establish if  you are liable for the property and the parts claimed. It may be useful to refer to a Chartered Building Surveyor for further advice. If the Lease has ended then the Dilaps Protocol requires the Tenant to respond to the Landlord within 56 days, otherwise they may incur penalties if the Claim proceeded to Court.

The further defence and negotiation of Dilapidations can be a difficult and protracted process and we would recommend the advice of a Chartered Building Surveyor at all stages of this process.

 

 

DISCLAIMER: This article is for general information only and not intended as advice. Each project has its own set of unique circumstances, all potential issues should be investigated by a surveyor on a case by case basis before making any decision.

As one of the leading dilapidation surveyor specialists in the UK, Bradley-Mason LLP act for landlords and tenants in all aspects of dilapidations and leasehold repair. Our proactive approach to advising on dilapidations ensures compliance with the dilapidations protocol and is designed to avoid unnecessary costs, so that a settlement can be reached without the need for legal recourse.

Commercial dilapidation surveys are essential, especially if you are a contractor, developer or landlord about to start a new project. The in-depth property survey assesses and documents the state of building elements and structure including minor wear and tear. A detailed report reveals the work required to restore the property back to its original condition before the tenancy.

Dilapidations surveys are needed to give landlords an insight into whether maintenance contracts have been adhered to in accordance with the terms of the tenancy agreements. Works such as building construction, developments, infrastructure projects, road works, excavations and demolitions have the potential to cause faults in structures if the correct precautions are not taken, making any damage costly to remedy. Since it is often hard to prove how this happened and who is to blame, a dilapidation survey may be a good idea.

By commissioning an independent third-party surveyor, fairness is guaranteed for all parties involved, while bias and underhand techniques used to create or prevent additional works or affect the financial implications can be eliminated. Commercial properties from across all sectors including office, retail, leisure and industry are likely to have a need for a dilapidation surveys.

Here are three key reasons as to why a dilapidation survey may be required:

1. Dilapidation surveys are a useful precautionary measure, highlighting the existing condition of the property including any areas that may be vulnerable to damage, and protecting the interests of all parties in the event of a claim.
2. Dilapidation surveys are a useful tool to help understand the condition of the structures before any construction work, enabling precautions to be taken in order to minimise damage, and to aid with site restoration after the work has been completed.
3. Dilapidation surveys provide solid written evidence to counter any fraudulent claims and liabilities, protecting the interests of all stakeholders in the event of any claims that may arise.

At Bradley-Mason LLP, we recommend that dilapidations are considered at an early stage and well in advance of the Lease end, whether we are acting on behalf of a landlord or tenant. Landlords will find it useful to know the condition of the building before the Lease expires so that the tenant can be fully notified of any works required. While some landlords prefer early implementations so that the work can be carried out and monitored for quality, others may choose a cash settlement instead. In either case, it is advisable to develop a strategic approach to facilitate the best outcome for all concerned.

For expert advice and to discuss your requirements, please get in touch.

 

DISCLAIMER: This article is for general information only and not intended as advice. Each project has its own set of unique circumstances, all potential issues should be investigated by a surveyor on a case by case basis before making any decision.