A claim for dilapidations is a useful remedy for landlords who are concerned about the state and condition of their rented commercial property. This often comes to light shortly before, or immediately after, an outgoing tenant has vacated.
What are dilapidations?
The term ‘dilapidations’ is used to describe the repairs and other costs required to put a property back into the state and condition that it was in prior to the commencement of a commercial lease.
Who is responsible for dilapidations?
Most commercial leases contain provisions relating to the maintenance of the property during the lease term, which often impose extensive obligations on tenants to keep the property in good repair and condition. If these obligations are not complied with by outgoing tenants, landlords are able to make a dilapidations claim in order to recover their resultant losses to reinstate the property.
When should a dilapidations claim be considered?
Commercial landlords should keep dilapidations in mind throughout the duration of the lease term, making sure that tenants carry out the repairs required by the terms of the lease in order to keep any dilapidations claim to a minimum. If concerns come to the fore at this time, an interim dilapidations claim can be considered.
Landlords should pay particular attention towards the end of the lease term (within the last 12 months) to ensure that they are prepared to make a terminal dilapidations claim in good time prior to the end of the lease term, so as to not miss any legislative deadlines, and (if appropriate) to allow tenants an opportunity to rectify the issues whilst they remain in occupation.
How do I begin a dilapidations claim?
If a landlord is concerned about dilapidations arising in relation to their property then it should consider instructing a surveyor who will inspect the property and prepare a Schedule of Dilapidations. A Schedule of Dilapidations is a document which sets out the breaches of the tenant covenants which have occurred, and what is needed to rectify each breach. Ideally the Schedule of Dilapidations will be accompanied by a Quantified Demand which will estimate the amount of money which is required to remedy each breach (usually either through repair or replacement).
The Schedule of Dilapidations and Quantified Demand will then be served upon the tenant in accordance with the relevant legal and lease requirements. This should ideally be done before the end of the lease term to provide a tenant with an opportunity to carry out the required works itself, but must certainly be served within 56 days of the end of the lease term as is expected by the Court. It is essential that these documents are served in accordance with the lease provisions, so it is recommended that a solicitor is appointed to do so.
Most commercial leases will make provision for landlords to recover the legal and professional costs spent in preparing and serving the Schedule of Dilapidations from the tenant.
What is the process once the Schedule has been served?
The Courts will expect all landlords to have followed the steps set out in the "Pre-Action Protocol for Claims for Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy" - otherwise known as the Dilapidations Protocol - before issuing their claim.
The Dilapidations Protocol provides a tenant with 56 days in which to respond to the Schedule of Dilapidations, and then encourages the parties (and/or their respective surveyors) to engage in a without prejudice meeting in order to attempt to agree as many of the items within the Schedule which are in dispute as possible.
Do dilapidations claims often end in Court proceedings?
Whilst Court action is an option available to landlords, parties should always take time to explore whether negotiation or alternative dispute resolution is possible before issuing a claim.
We can utilise our expert knowledge in this complex area of law in order to lead these negotiations to ensure that you achieve a sensible and commercial settlement with your tenant.
However, settlement is not always possible. Parties can become entrenched in their positions and sometimes Court action is unavoidable. In this instance, the Court will decide the extent of the dilapidations liability and will likely order the tenant to pay the landlord an appropriate sum in damages. We can guide you through this process in order to achieve the best possible outcome for you.
How can mfg Solicitors LLP help?
We have a dedicated Property Litigation team who have helped many commercial landlords to make their dilapidations claims. In particular, we can assist with:
- Serving the Schedule of Dilapidations and Quantified Demand in accordance with the lease terms;
- Guiding you through the steps set out in the Dilapidations Protocol;
- Negotiating with the tenant in order to reach an amicable settlement; and
- If necessary, issuing Court proceedings in order to recover the losses which are incurred as a result of the accrued dilapidations.
If you wish to discuss any issues raised in this article further, please do not hesitate to contact one of our team using the contact details below.
Stephanie Rushfirth, Solicitor firstname.lastname@example.org