What can a landlord include in a dilapidations claim?

Repairs
The cost of repairing the demised premises may include putting the premises into repair that meets the standards found at the beginning of the lease. You may also find that the obligations may be outlined by a Schedule of Condition recording the standards required.

Decorations
As standard, most leases require that the premises be decorated internally every five years and externally every three years. There will usually be a clause requiring that the entire premises be decorated in the last year of occupation.

Reinstatement
It is usual for the tenant to be required to reinstate the premises to the configuration / layout in which the premises were originally found. For example, this is likely to include the stripping out of any partitioning or plant.

Professional fees for Contract Administration
The fees for preparing the specifications, obtaining tenders and administrating works on site.

Professional fees for preparation of the Dilapidations Schedule
This may also include the fees for any specialist testing.

Loss of Rent
The market rent for the period it would take to undertake the works plus possibly the period for preparing specifications and obtaining tenders. Although in a poor renting market the landlords ability to demonstrate this loss will become harder.

Loss of Service Charge
Only If applicable where the building is in multiple occupancy and a service charge account applies.

Value Added Tax
On the cost of the works where not recoverable by the landlord.

When will you receive a Dilapidation schedule?
There are two stages where dilapidations might affect a tenant; during the term if the landlord is concerned that the tenant is failing to keep the premises in good repair; or more commonly at the end of the lease when a landlord usually alleges that a tenant has not complied with his repairing obligations.

During the Term of the Lease – The landlord may serve an “Interim” schedule when a tenant has over three years remaining on the lease. The tenant’s obligation to repair in such circumstances is governed by his repairing obligations, lease term and statutory limitation. An interim schedule is difficult to enforce formally due to the dangers of inviting forfeiture of the lease if entry is gained to the property without specific cause.

At Lease End – the landlord may serve a “Terminal” dilapidation schedule when there is three years or less left on the lease, or up to six years after the lease has expired. The landlord is either in a position where he is seeking damages when the tenant has vacated and not undertaken work, or he is trying to ensure that when the tenant leaves the premises, the property is in good repair.
The end of the lease may come by natural expiry, or may be as the result of the enactment of a break option or forfeiture of the lease. In many cases a break option may require strict compliance with regards to repairing obligations for the break to be effective.
Landlords and tenants have diametrically opposed objectives in dilapidations – the landlord wants the highest possible damages whilst the tenant wants to minimise his costs. Historically this has resulted in over-exaggerated claims in both scope and cost
to leave a margin for the tenants agent to negotiate.

1The key to successful resolution of dilapidations for tenants is based on forward planning. We often advise tenants to seek the advice of a professional well in advance of the lease expiry in order that the dilapidations liability can be assessed and a strategy established. They can then work on behalf of the tenant to negotiate an acceptable settlement and can project manage any required works.

2 In the case of an Interim Schedule, the tenant can seek relief under the Leasehold Property (Repairs) Act 1938 (as amended by the Landlord and Tenant Act 1954) if the lease has more than three years to run (and the lease term is over seven years). This will normally be successful provided that the repairs are not required to put the building in repair under a specific lease covenant or to avoid substantial damage to the value of the reversion of the landlord.

3 In respect of the terminal schedule, the tenant has a number of options as the end of the lease approaches:
• The tenant can attempt to comply with all his repairing obligations either by his own interpretation of the lease or by reference to the landlord’s schedule.
• The tenant can do nothing, wait until the lease expires and then seek to negotiate a financial settlement.
• He can carry out limited works and seek to negotiate a settlement in respect of the work he is not undertaking.

4If the tenant has discharged all his liabilities then the matter should be concluded swiftly. This option is not always viable, as the premises are usually required until immediately prior to the lease expiry. There is also the risk that the landlord may have plans for the building which would over-ride the requirements to carry out some works (ie substantial refurbishment) or they may have a new tenant wishing to retain some of the facilities for which there is a requirement for reinstatement. There is also the danger that the works carried out by the tenants may not be of a satisfactory standard resulting in a full claim from the landlord in any event.

5 we recommend you maintain all data relating to maintenance work done to the premises and its mechanical or electrical installations during your period of occupancy. This can be used to prove that a system remains in working order, consequently, in repair despite any shortcomings in its life expectancy or even original fitness for purposes.

The RPS approach;

As professional adviser’s our role will include the following to ensure that you minimise your financial liability;

1 Assess the repairing, decoration, alteration and yield up covenants within the lease and any other supporting documentation.

2 Advise you as to whether it is best to undertake certain works prior to the expiration of the lease in order to reduce/remove the dilapidation liability or to seek to negotiate a financial settlement with the landlord.

3Prepare report assessing the dilapidations liability, which will provide a realistic breakdown of the potential claim in relation to building works, loss of rent, service charge and insurance.

4 When project managing works, we will ensure that the scheduled works and costs do not exceed the specific liabilities and will not be superseded by essential works required to market the premises.

5 we will be persistent in negotiating a settlement in order to minimise the client’s uncertainty over liabilities or the potential monies available to undertake repairs.

Dilapidations Strategy, The Role of RPS;

Dilapidations are often ignored until the end of the lease. The obligations on both the tenant and the landlord are clearly set out in the lease and by careful management they can be minimised for tenants. A well advised tenant is able to ensure that their buildings do not fall into costly disrepair for the want of a well planned maintenance scheme and a strategy for compliance with the repairing and decoration clauses in the lease in time for the expiry of the term. A proactive approach by all parties will ensure that the long delays associated with dilapidations issues are minimised and tenants can move on without substantial and unnecessary loss.
A clear strategy in dealing with either the repairs or a financial settlement well in advance of lease expiry will afford the flexibility to obtain the best outcome.