Managing Claims for Dilapidations
Dilapidations refer to the breaches of lease agreements that are in relation to the condition of the property during the tenancy or when the lease ends. Your Tenant has an obligation to you, under the terms of the lease to keep your property in good repair and if they fail in this regard you should be able to recover the cost of work and repairs from your tenant.
With budgets tightened, tenants will often fall behind on their repairing obligations under their leases. However, these obligations cannot be avoided altogether. The implications of non-compliance become particularly evident at the end of the term when the landlord serves a schedule of dilapidations. This sets out the works required to put the property into repair, and the cost of carrying them out which the tenant will be asked to pay.
The tenant therefore has two choices; either comply with the repair obligations and carry out works necessary to achieve this prior to the lease expiry; or pay the landlord for the cost of the works (and no doubt also professional fees for monitoring them), together with an amount for loss of rent while the repair works are carried out by the landlord after the expiry of the lease.
However, when a tenant is served with a schedule of dilapidations, it should not be assumed that the tenant is liable for the full amount shown.
The following considerations should be made:
- Is there a schedule of condition attached to the lease, limiting the extent of the tenant’s obligations?
- Are there any subleases in place containing repairing obligations, allowing the tenant to off-load some of the responsibility to the subtenants?
- Has the tenant appointed its own surveyor to check the extent of the repairs required and the reasonable cost involved?
There is also a further analysis to be made. Under section 18 of the Landlord and Tenant Act 1927, the amount the landlord can claim from a tenant for the repairs is limited to the lesser of the cost of repairs and the reduction in value of the landlord’s interest in the property, as a result of the disrepair. For example, if the cost of repairs would be £100,000, but the reduction in value calculation shows a value of £20,000, the maximum sum recoverable by the landlord would be £20,000.
Furthermore, if the tenant can show that the landlord intends to substantially redevelop the property so that any repairs would be rendered useless, no damages would be payable at all.
Note that most leases reserve the right for the landlord to enter the property during the term to view the property and prepare an interim schedule of dilapidations requiring the tenant to rectify any disrepair. If the tenant then fails to do the works, the landlord can charge the tenant the cost of carrying them out. The section 18 cap on damages will not apply here and so landlords would be well advised to make good use of this option. Serving interim schedules also avoids bigger arguments at the end of the term when the disrepair may be more substantial.
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This article is general comment. You must not act or decide not to act without receiving legal advice specific to your circumstances.