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Dilapidations Negotiations

Put simply, dilapidations are the tenant’s liability to repair the premises under the terms of a lease. The lease will contain specific clauses which dictate the extent of this obligation.

Liability extends not only to ongoing repairs and decoration but also to handing the property back in no worse a condition as when the lease first commenced.

Whilst dilapidations are often considered towards the end of a lease, a tenant needs to consider repairing liability before the lease is signed.

This guidance will explore how tenants can avoid unnecessary and often significant costs by considering dilapidations from the outset, during and at the end of the lease. In certain circumstances, tenants may even escape the landlord’s dilapidations claim entirely.

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Before signing the lease

When renting a car, note is taken of any defects so as not to be liable for dents and scratches which have nothing to do with the hirer. The same principle applies to taking a new lease of a property. It is worth the relatively small expense of instructing a building surveyor to inspect the premises prior to signing the lease as this could save an unwary tenant a fortune further down the line.

A building surveyor will be able to provide a schedule of condition which records the state of the premises and can be annexed to the lease by the tenant’s solicitor, limiting the repairing liability.

If the tenant is intending to alter the property, the landlord will usually demand that the premises are re-instated at the end of the lease. If this seems unfair then the tenant is best to raise the point before the lease is signed, as they may be able to negotiate a more flexible arrangement.

The landlord will normally have standard decorating and repairing clauses which will be inserted into a draft lease and will likely be in the landlord’s favour. It is worth considering whether these clauses are fair or onerous.

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During the lease

The decorating and repair obligations will begin as soon as the lease is completed. It is generally worthwhile fixing and repairing issues as they arise so as to minimise a nasty financial shock at the end of the lease. An alternative would be to set up a financial plan to deal with a landlord’s potential claim for the cost of repairs.

As the obligation to repair and decorate is ongoing, the landlord may at any time inspect your property and point out items of disrepair. Usually this will be done informally, but a tenant may receive a ‘schedule of dilapidations’ outlining wants of repair.

It is wise to take advice from a building surveyor before agreeing to any ‘schedule of dilapidations’ in case there are any discrepancies. Tenants should respond to the landlord’s schedule within 56 days.

Tenants should not ignore the landlord’s insistence on repairs. A breach of the repairing covenant can lead to the landlord taking the property back and forfeiting the lease. In this circumstance, the landlord is required to serve a formal notice although the tenant has a right to ‘remedy the breach’, i.e. complete the repairs, within a reasonable time.

In addition, if the tenant does not respond in an appropriate timeframe, the landlord may have the contractual right to enter the premises to fix any wants of repair under a ‘self-help’ clause in the lease. The tenant will then be liable for the costs which will be recoverable from these works as a debt.

At the end of the lease

If the tenant does not intend to renew the lease then they should be thinking about the dilapidations liability prior to the final year of the term. This will give enough time to assess and instruct any repairs.

During the final year, the tenant may receive a terminal schedule of dilapidations from the landlord. However, the landlord is not obliged to serve a schedule and the tenant may find that if they do not deal with dilapidations the liability may increase at the end of the lease. The landlord can submit a loss of rent claim to compensate for the period of completing any remedial work once the tenant has left.

The dilapidations process forms part of the Civil Procedure Rules and so a strict protocol applies. A court will always expect the parties to adhere to this protocol including any time limits.

For example, a landlord should serve its schedule of dilapidations within 56 days of the end of the term. As before, the tenant then has 56 days in which to respond. The parties are expected to consider alternative dispute resolution (ADR) prior to proceedings in court.

Failure to follow the protocol will likely result in sanctions from the court and an award of costs against the delinquent party.

The landlord’s claim

Any claim issued by the landlord must be reasonable. If a claim contained a minor repair which required a disproportionate sum to remedy then a landlord is unlikely to recover the full amount.

There are statutory provisions which limit the landlord’s claim too. Section 18(1) of the Landlord and Tenant Act 1927 caps the landlord’s claim at the diminution in value of the landlord’s property on account of the disrepair. Any corresponding award of damages will not exceed this sum.

CTA TOP TIP: Try to establish the landlord’s intentions. If the landlord is intending to redevelop, structurally alter or demolish the property then their claim may fail entirely.

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