Dilapidations at the end of a Lease can be a significant source of confusion, misunderstanding and dispute. From a Landlord’s perspective, ensuring that their property is returned in a good standard of repair at the end of a Lease will reduce the potential impact of any vacant periods, helping to secure a new Tenant and a good price for the property.
Here we give some advice for Landlords on how to navigate dilapidations with a view to keeping their properties in good condition.
The best way to minimise the potential for dispute at the end of a Lease is for the repair obligations of the tenant to be clearly laid out in the Lease. Although there is no guarantee that the Tenant will adhere to these obligations, it provides a degree of protection to the Landlord as they know what they will be able to claim for in the event of a Terminal Schedule of Dilapidation and subsequent financial claim.
Any dilapidations claim that is issued to an outgoing Tenant will need to be broken down and evidenced with a Schedule of Dilapidations. Ideally and to avoid any potential for dispute, this should refer back to a Schedule of Condition undertaken at the time the Tenant took up occupancy.
Landlords frequently believe dilapidations is an issue to be dealt with when the Tenant’s Lease is due to expire. However, leaving it until the end of a Lease term to deal with any issues of repair or disrepair usually means having to rely on issuing a dilapidations claim – without giving any alternative routes to resolving any issues.
Undertake regular inspections
Increasingly, Landlords can incorporate clauses into Leases that gives them the right to enforce repairing and other covenants during the Lease term by presenting the Tenant with a Repairs Notice.
Where an issue is identified that could lead to lasting damage to the property, a Landlord should be able to issue an Interim Schedule of Dilapidation, which will require the Tenant to complete repair work immediately.
This provides Landlords with peace of mind, during the term, that any serious issues that may impact upon the property’s long-term value will be minimised. Furthermore, rather than waiting until the end of a Lease duration to uncover any issues, the property can be maintained to a good standard along the way, therefore reducing any protracted periods of negotiation and subsequent repair following the exit of a Tenant, which can ultimately lead to loss of revenue. Although loss of revenue can theoretically be included as part of a dilapidations claim, it can sometimes be difficult to prove.
Be aware of limitations
Landlords can sometimes see a dilapidations claim as providing a potential windfall, however, there are several limitations in place that limit what a Landlord is in fact legally able to claim against an outgoing Tenant. Determination of ‘loss’ is determined by Section 18 (1) of the Landlord and Tenant Act 1927, which dictates that any costs claimed should be ‘reasonable’. Claims regarding loss of rent must be proven, and if a Landlord plans to redevelop, refurbish or make substantial alteration to the premises after lease expiry, there is a limit to the amount they are able to claim.
For further advice in relation to commercial property that or own or manage, please get in touch.