Commercial landlords can make a dilapidations claim against their tenant if they feel they have broken their lease agreement and left a property in a bad condition.
The strength of any dilapidations claim depends on demonstrating the property’s state at the date of lease expiry/break.
If a landlord decides to make a claim, they must follow the Dilapidations Protocol - this applies in England and Wales and relates to claims for damages made against tenants at the end of their tenancy. The aim of the Protocol is to help the early exchange of documentation, narrow down the issues and ultimately reach a settlement before the last resort of Court proceedings.
When making a claim, a landlord will need to have a legal document drafted up – called a Schedule of Dilapidations. As this details exactly how the tenant has breached the terms of the lease, together with the cost of the items to be repaired, a Chartered Building Surveyor prepares the Schedule.
A landlord should also instruct a Chartered Valuation Surveyor to produce a Section 18 Diminution Valuation (DV). This DV ( or “statutory cap”) in England & Wales, which also applies under similar legislation in Ireland and the Isle of Man, limits damages payable for dilapidations to the lower cost of remedial works, or the impact (if any) of the disrepair has on the property’s value. As the impact on value is commonly less than the cost of all remedial works, it might seem counterintuitive for a landlord to need a DV. However, not only will one be required to rebut an opportunistic one advanced by a tenant, a landlord is required to get one by the legal guidance (the Protocol) if not (yet) doing all the claimed works.
Top tips for landlords:
- A landlord is far more likely to be successful with a dilapidations claim if the lease is worded effectively. As with any form of legal document, if there are ambiguities, this can cause problems when resolving conflict in the future.
- If a tenant does not allow access in the run-up to lease expiry, then a landlord should carry out a dilapidations survey within days of lease expiry/break.
- Many leases have a Jervis -v-Harris clause allowing landlords to enter a property during the term of the lease to remedy serious breaches of the tenant’s duties to repair. Using this clause is well worth considering when a lease expiry (or break date) is still some way off, but there are concerns about the tenant’s solvency or the risk of their company entering a CVA to escape any liabilities. A landlord can then carry out the (serious) works and recover the cost from the tenant as a debt due.
- When letting a property, a tenant may ask for a Schedule of Condition. Done properly, this accurately records the condition of the property at the start of the tenancy, ensuring that when the lease expires, it is clear what has deteriorated. Whilst this helps the tenant, it also helps to enforce the landlord's rights. Our chartered building surveyors will carry out a building survey and advise on the details of any breaches and priced repairs. This will make it clear what needs to be remedied by the outgoing tenant or if not done, what compensation the landlord is owed. We can go on to negotiate with the tenant on behalf of the landlord, to swiftly settle any disputes and avoid litigation where possible.
At Dilapsolutions, we uniquely provide both disciplines of a Chartered Building and also Valuation Surveyor – each equally necessary in operating as a team to achieve the best settlement of any dilapidations disputes.
If you are a commercial landlord concerned about dilapidations claims and would like to find out more, get in touch here.