10 Sep 18 by Dennis Venn

Dilapidations – Tenant’s Cost or Landlord’s Profit

Always viewed by tenants as the landlord profiteering, while landlords believe tenants leave the property in disrepair and a worse condition than at commencement of the lease. As always, the truth is somewhere in the middle. There is no coverall statement that can be made that applies across the board, the wording within individual leases requires careful review.

Having dealt with claims from £10,000 to £900,000 no two claims are the same, but there are some general principles to always to bear in mind. The tenant must comply with their covenants, put the premises into its original condition (if required by the lease) into repair and decorate. The complication is that in certain circumstances, the landlords loss (i.e. the maximum claim) is not always the cost of the works but the loss in value of the premises. To argue this “Section 18” limitation on small dilapidation claims is difficult owing to a valuer’s ability to prepare accurate valuations when the amount in question could be within the accepted margin of error for undertaking a valuation and/or the cost of preparing the valuation and undertaking negotiations is disproportionate to the amount being disputed.

Undertaking appropriate repairs and decoration to return the property in an appropriate condition does not necessarily mean complying with all repairing covenants. Care is required when taking any course of action that does not comply with the lease covenants as it can leave the tenant open to further costs. Recently acting for a Landlord, the Tenant, tried to negotiate a significantly lower cost for their liabilities than the Landlord’s opinion of cost for repair. When negotiations did not progress in their favour, the Tenant decided to undertake work which resulted in work being incomplete and that undertaken was finished to a poor standard. The Tenant’s own surveyor commented that the work was far more expensive than they had anticipated. Failure to obtain access to the interior of the premises, owing to sub tenants, meant that no internal works were instigated. As a consequence the Tenant incurred significant costs for repair, surveyor’s fees in negotiation initially and then further costs for the Landlord to prepare of a further terminal schedule of dilapidations and negotiate the financial settlement.

Well managed work can remove the tenant’s liabilities and return the premises within time and prevent the landlord taking any further action

Often overlooked, in the haste for a tenant to take occupation, are the details of property condition at the outset of the lease or the layout of a property prior to alterations being undertaken. Many licenses for alterations show what the premises will look like, but not its original configuration. This makes reinstatement 10-15 years hence difficult to quantify, resulting in increased costs for landlord and tenant.

Whether a landlord wishes the tenant to undertake repair or provide a cash settlement is generally outside of its control. Early communication and preparation of schedules can assist in obtaining the preferred outcome.

Careful analysis of leases, licenses and schedules is required to confirm the accuracy of a landlord’s claim. Recently acting for a tenant we are able to reduce a £210,000 claim for industrial units, through detailed and careful negotiation all the way through to pre-action Court meetings to £75,000.

Testimonial statement

Clear technical advice to the client with the ability to negotiate have been key in negotiations.

R Bagwell FAS