Dilapidations

Dilapidations are breaches of leases due to the condition of the property being leased, either during or at the end of the lease period. This may result from mistreatment of the property or poor or absent maintenance or repairs that are required by the lease. Further work may also be required at the end of a lease to reinstate alterations that have been made to the property by the tenant.

Tenants should be clear about their responsibility for dilapidations and reinstatement when signing a lease or carrying out alterations and should budget and account for any necessary works during the course of the lease. If they fail to do this they face the prospect of unexpected, or unaffordable works, or having insufficient time to carry out the works before the end of the lease.

If the required works are not carried out, the landlord may issue a schedule of dilapidations, or a notice to reinstate near the end of the lease (or an interim schedule during the course of the lease).

If dilapidations works are not carried out by the end of the lease, the landlord may claim damages from the tenant (a terminal dilapidations claim). This may take the form of a ‘quantified demand’ setting out details of the landlord’s losses as a result of the dilapidations, which may include loss of rent due to repairs being carried out. However, the landlord cannot profit from this claim, so if for example the landlord does not intend to reinstate the property, this must be taken into account.

These issues may result in a period of negotiation between the tenant and landlord in an attempt to agree a settlement figure. If the negotiation process fails then alternative dispute resolution or court proceedings may be necessary.

The valuation of works required, or the loss of value to the property can be complex calculations, and so both parties may wish to appoint surveyors to offer advice and prepare the appropriate documentation. Further specialist advice may be necessary for complex components or aspects of a property, such as building services plant. Court proceedings may also involve expert witnesses.

A ‘Pre-Action Protocol for Claims for Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy’ (the 'Dilapidations Protocol') is available from the Ministry of Justice. This describes the conduct the court expects the parties to follow before commencing proceedings, setting out a process and timetable for the exchange of information, and establishing standards for the content and quality of schedules of dilapidations and quantified demands.