What is a claim for dilapidations?
“Dilapidations” is the rather quaint legal term to describe a claim that a landlord may have against a tenant on the expiry of a commercial lease. The claim is based on the allegation that a tenant exiting the leased property has caused damage to the premises or failed to maintain the premises properly. The claim is divided into two broad areas:
- The costs of repairs which can include the cost of a surveyor assessing the damage and the extent of necessary repairs;
- The loss of rental income which the landlord incurs as a result of being unable to rent their property while they undertake the repairs which were, in terms of the contract, the responsibility of the tenant.
What is a dilapidation?
At its simplest dilapidation is the damage or disrepair to a commercial property which the tenant, in terms of their lease, is obliged to make good at their own cost. The starting point for determining whether something is a “dilapidation” as opposed to reasonable “wear and tear” (an inevitable and lawful consequence of occupation) is the agreement itself. These clauses are often referred to as “covenants” but are really nothing more than contractual undertakings in the lease agreement.
Standard form commercial lease agreements usually contain detailed provisions regarding maintenance of the property and the structural changes a tenant is permitted to make. This is best illustrated by way of example: a lease agreement could include provisions about the maintenance and regular cleaning of the drains on the property. On expiry of the lease, the landlord discovers that the tenant, in breach of this obligation, has not maintained the drains. These facts could found a claim for dilapidations against the exiting tenant.
How much can a landlord claim for a dilapidation?
The amount a landlord can claim from a tenant for dilapidation will depend on the facts of each case. However, there are a few basic guidelines which can assist a landlord when considering making a claim for dilapidation against a departing tenant.
- Is it a “dilapidation”? It is vital that the clauses in your contract dealing with dilapidations are clear and unambiguous in their terms. The tenant’s obligations must be clear from the words used in the contract. If there is uncertainty the clause will be interpreted against the interests of the party that inserted them (in this case the landlord). This is known as the contra proferentem rule which is a foundational principle of UK contract law.
- Is there a claim? If a landlord is going to demolish or significantly redevelop the property after the departure of the tenant then a dilapidation claim is not possible.
- Calculation of the claim. A landlord will not be able to recover all of the expenses. The amount claimable ie the cost of repairs and financial damages due to the delay in renting out the property to another tenant, is limited to the amount by which the landlord’s interest in the property is devalued as a direct consequence of the need for repairs.
Guidance for tenants
It is equally important for tenants to pay close attention to their obligations under their lease agreements and, if necessary, budget for repair works at the end of the tenancy. If you are contemplating significant structural changes to the property if is vital that you inform the landlord of your plans and obtain their written consent. Copies of all correspondence should be retained as it may be of great assistance at the end of a lease should the landlord wish to invoke their right to claim full reinstatement of the property.
What to do when disputes arise
It would be in all parties interests for a dispute to be resolved as efficiently and without the need to resort to litigation. Parties should engage with each other in good faith in a genuine attempt to resolve the dispute. This is not simply prudent business practice it is a requirement of the Civil Procedure Rules which has a pre-action protocol specifically designed for this type of dispute.
A court ultimately hearing a dispute may punish a party with a punitive costs order if it appears from the evidence that that party failed to properly engage with the pre-action protocol which may have avoided the need for litigation.
Roadmap to resolution
The pre-action protocol sets out in detail the steps the courts expect litigants to take before issuing proceedings. If you believe that your dispute may give rise to litigation it would be prudent to consult a solicitor for guidance on compliance with the pre-action protocol.
We will break down the protocol into its stages. You will notice that the emphasis is on the exchange of information and a genuine attempt to settle the dispute:
Stage 1: Exchange of information
The landlord should deliver a document to the tenant setting out:
- the nature of dilapidation (repair, reinstatement or redecoration)
- refer to the clause in the lease agreement that applies to each item;
- indicate the type of work that will be necessary;
- a basic costing of the repair work;
- its intentions for the property
The tenant has an opportunity to consider the claims and respond. Itemising which items it rejects and why. The tenant is free to dispute the landlord’s intentions and raise the contention that the landlord intends to demolish/ drastically alter the structure of the property. If this turns out to be true then is may be a complete defence to a dilapidations claim.
Stage 2: Inspections and settlement negotiations
The parties are encouraged to meet and attempt to resolve the dispute. This could include inspecting the premises or going through the list of dilapidations to eliminate items not in dispute.
Stage 3: Issuing proceedings
If settlement is not possible the landlord can initiate proceedings. At this stage there should be a careful consideration of the costs of litigation versus the cost of settling the claim. Your solicitor should be able to advise you on the merits of your claim or defence to inform your decision.
If you have followed the pre-action protocol properly you should, at the end of this process, have a clear idea of the issues and the areas of dispute between the parties. This will benefit all parties as it will curtail and the length and complexity of the proceedings.
This article is provided by Burlingtons for general information only. It is not intended to be and cannot be relied upon as legal advice or otherwise. If you would like to discuss any of the matters covered in this article, please contact Fionan Foo or write to us using the contact form below.