For many commercial landlords, dilapidations only become a real priority when a tenant is preparing to leave or after the lease has terminated. By that stage, the landlord may already have fewer options, weaker evidence and a claim worth materially less than the Dilapidations Schedule suggests.
A number of factors may limit what can be recovered, including, the wording of the lease, or evidence of the property’s condition at commencement of the lease. Landlords are also far more limited in what can be recovered for repairs once the lease has ended as any clam is then limited by the landlord’s own future plans for the property and the diminution in value caused by the disrepair.
When it comes to maximising your recovery around disrepair, there is real value in understanding the legal position well before the tenant is handing back the keys.
Start with what the Lease
A Schedule of Dilapidations will often tell you about the condition of the property and the works that need to be done, but that does not mean everything in the Schedule is actually recoverable.
The starting point is always the Lease. Small differences in drafting can materially change the repairing standard: an obligation to keep premises in repair may require a tenant to put them into repair in the first place, while an obligation to keep premises in good condition can impose a wider standard still (Suisse v Beegas Nominees Ltd [1994] 1 EGLR 76). The Lease also needs to be considered alongside any other relevant documents entered into during the term, because what looks like a straightforward item on a surveyor’s schedule may look rather different once the full contractual position has been analysed.
It is often better to get a legal view at the point the Schedule of Dilapidations is being produced to avoid misrepresenting a potential claim and undermining a landlord’s position.
A Large Schedule Does Not Always Equal Large Recovery
This is one of the points that can come as an unwelcome surprise.
Even where there has clearly been a breach of repairing covenant, the cost of the works on the schedule is not necessarily the amount the landlord can recover. When we get to the end of a Lease Section 18(1) of the Landlord and Tenant Act 1927 caps damages by reference to the diminution in value of the landlord’s reversion caused by the disrepair. This is usually a considerably lower sum than the dilapidations listed.
The landlord’s future plans also matter: where redevelopment, refurbishment or other intended works would supersede the repairs, that can further limit, and in some circumstances defeat, the claim.
Early advice is therefore not about making the claim more contentious. It is often the opposite: establishing what is genuinely recoverable at the outset can narrow the dispute and avoid time and cost being spent on points that were never commercially worth pursuing.
Why are you waiting for your tenant to leave?
Repairing obligations do not suddenly become relevant six months before lease expiry or when a notice is served. Depending on the terms of the lease, a landlord may often have between remedies available while the tenant is still in occupation. Interim inspections can identify deterioration early enough for something to be done about it, rather than allowing a problem to compound until the end of the term.
Many commercial leases also contain what are commonly known as Jervis v Harris provisions that allow a landlord to carry out repairs during the term and recover the full cost o those repairs (provided they are reasonably incurred) from the tenant as a debt rather than damages. That distinction matters because it can produce a very different recovery position from terminal dilapidations claim which is subject to a number of caps.
Waiting until expiry of the lease can mean not only losing the opportunity to use remedies that were available while the lease was still running, but also leave landlords with longer voids and limited recovery when it comes to disrepair
Overlooking Dilapidations on Renewal
Lease renewal is another point at which the existing condition of the property deserves proper attention.
If an existing tenant is staying, it can be tempting to concentrate on the new commercial terms and treat the condition of the property as something that can be addressed later. However, Outstanding repairing issues under the current lease should be considered at the point of renewal. Otherwise, a landlord may lose the right to claim for disrepair caused before the point at which the new lease is settled.
Collect the Evidence from the Start
Dilapidations disputes are often determined by evidence created years before anyone expected there to be a dispute.
A schedule of condition, photographs, inspection records and correspondence about defects may later be important in establishing the property’s earlier condition and the extent of any tenant breach. The difficulty is that once a tenant has left, missing evidence cannot always be recreated.
No one wants to be thinking in terms of potential litigation from the day the lease is granted. Preserving sensible records as part of managing the property, rather than trying to reconstruct its history when something has already gone wrong, is the best way for a landlord to protect their position and the future of their investment.
