What is a Dilapidations Claim?
Dilapidations is a claim that a landlord has against a tenant of commercial property for failing to comply with the tenant’s repair obligations under a lease.
Terminal dilapidations can be made by a landlord at the end of a lease. A landlord may also be able to bring an “interim dilapidations” claim during the term of a lease.
Terminal Dilapidation Claims
A terminal dilapidations claim is for damages arising from a tenant’s failure to comply with an obligation under the lease to hand back the property at the end of the lease in the condition required by the lease. Such a damages claim seeks to compensate the landlord for the loss it suffers from such a breach and to put the landlord in the position it would have been in had the tenant complied with the repair obligations in the lease.
Terminal dilapidation claims normally include a claim for the cost of doing the works, loss of rent, service charge and rates for the period it takes for the works to be completed (subject to this being reasonable). It may also include professional fees.
Schedule of Dilapidations
To bring a claim for terminal dilapidations it is essential to prepare and serve a Schedule of Dilapidations on the tenant. This should carefully itemise the landlord’s claim and identify which lease obligations the tenant has failed to comply with. We work with surveyors who are experts at putting together/reviewing the Schedule of Dilapidations who we can recommend to you.
The tenant will have an opportunity to respond to the Schedule of Dilapidations prior to any Court proceedings being issued for terminal dilapidations.
Section 18 Landlord and Tenant Act 1927
Section 18 Landlord and Tenant Act 1927 can be used by a tenant to try to limit a landlord’s damages claim/reduce a tenant’s liability. It applies to items of repair only. It does not apply to other parts of a claim such as a tenant’s failure to decorate. Section 18 provides that firstly the repair costs claimed cannot exceed the amount (if any) by which the value of the reversion in the premises is diminished, and secondly no repair costs can be recovered if at, or shortly after, the termination of the lease the building will be demolished, or structural alterations are to be made as would render the repairs valueless
Both landlords and tenants need to obtain a “Section 18 Valuation” from a surveyor to understand what impact a section 18 defence is likely to have on a claim for terminal dilapidations. A Section18 defence can have a significant impact and, in some instances, reduce the value of a terminal dilapidations claim to nil.
When properly advised landlords and tenants are often able to reach a negotiated settlement. Part 36 settlement offers can be made at an early stage to put cost pressures on the other party to encourage early settlement.
Interim Dilapidation Claims
Landlords should strongly consider managing breaches of repairing obligations during the term of a lease by bringing interim dilapidations claims. By doing so a landlord can firstly, ensure their investment is protected by requesting the tenant to undertake immediate repair works to preserve the value of the property, and secondly, avoid the application of section 18 defence at the end of the lease.
Where a tenant refuses to comply with a repair obligation during the term of a lease landlords often have a step-in right under the terms of a lease to do the works themselves and recharge the costs of the works as a debt to the tenant. Other remedies for an interim dilapidation claim might include a landlord applying for forfeiture of the lease or for obtaining a court order for specific performance (to compel the tenant to do the works). By contrast, the only remedy available for a terminal dilapidations claim is damages for breach of contract.