Member Article

How to deal with a dilapidations claim

What are Dilapidations?

Dilapidations are a payment by a Tenant to a Landlord of commercial property to compensate him for the cost of repair and ‘making good’ defects which have occurred during a Tenant’s occupation. Whilst all leases contain obligations placed on the Tenant to keep the property that they let in a certain state of repair, they are often unclear and contain outdated terms. The Landlord’s dilapidations claim is prepared and served at the end of a lease to ensure that the building is either repaired properly or that damages are paid to enable him to carry out the works required.

When is a claim served?

Unfortunately for many Tenants the first they hear about dilapidations is when a claim is served on them by the Landlord at the end of their lease. The claim is usually in the form of a schedule which forms the basis of a claim and itemises all breaches of the lease which the Landlord feels the Tenant must pay for.

What does the Schedule of Dilapidations include?

The claim identifies the lease clause that the breach relates to and will also have a cost allocated for each breach. The majority of the claim is likely to relate to repair, reinstatement and redecoration breaches but will often also include statutory breaches such as the keeping of an up-to-date asbestos register and providing electrical test certificates for the building.

The Landlord’s professional fees (such as those of his Surveyor who will have prepared the Schedule after inspecting the premises) and a claim for loss of rent are often added, on top of what is typically a “full” claim for costs of works. The initial claim from the Landlord will often equate to roughly one year’s rent.

How much should be paid?

Whilst the first Schedule that is served on a Tenant typically has a high figure, this does not necessarily reflect the damages payment the Tenant will eventually have to pay. When a Schedule of Dilapidations is served on a Tenant they should immediately seek advice from a suitably qualified and experienced lawyer who will coordinate the input from an expert surveyor who is required to assist in ensuring the Tenant is not paying out for any works that they are not liable for under the terms of the lease.

If a Tenant is well advised, the Landlord’s claim can often be reduced substantially or even reduced to zero, based on appropriate legal arguments.

Prevention is better than cure!

It is advisable that legal advice is sought at the start of the lease to ensure that the Tenant understands the terms of their lease before agreeing terms. Additionally a building surveyor can prepare a ‘Schedule of Condition’ to accompany the lease which will help to limit the Tenant’s liability at lease end.

Prevention, as always, is better than cure and so it is imperative that a Tenant knows the terms of their lease and the obligations placed upon them so that a programme of works can be implemented throughout the tenancy to maintain the premises in good repair.

What should a Tenant do during a lease and at lease end?

A Tenant should consider the following actions when trying to limit their dilapidations liability under any commercial property lease:

• Instruct their lawyer to consider dilapidations liability at the start of the lease, before anything is signed;
• Keep a record of all works (repair, decoration and alteration) undertaken during the lease so it is possible to provide evidence of works required under the lease;
• Take a detailed set of photographs at the start of the lease and ask the lawyer to have them attached to the lease and qualify the repairing covenant in the lease by reference to them;
• In the last 6 – 12 months of the lease instruct the lawyer to approach the Landlord to commence a negotiation process. A Tenant who is able to carry out remedial works prior to lease end will always be in a stronger position to negotiate a favourable settlement than one who leaves a premises in a state of disrepair.

Early advice from a commercial property lawyer experienced in lease terms (and the resulting dilapidations liabilities arising!) and with a commercially pragmatic approach to dispute resolution will best protect any commercial Tenant from the start of the lease through to the end.

Tilly Bailey & Irvine Solicitors is the Tees Valley’s largest full service law firm with offices in Wynyard Park, Stockton on Tees, Hartlepool and Barnard Castle. It has a multi-disciplinary business law team, based at Wynyard Park, offering expertise in fields including commercial property, dispute resolution, mergers acquisitions and disposals, intellectual property and employment. For further advice, contact Tilly Bailey & Irvine Solicitors on 01740 646000 or see www.tbilaw.co.uk .

This was posted in Bdaily's Members' News section by Emma Hignett, i2i Business Solutions .