Dilapidations

Many large leases are now coming to an end without renewal, and the prospect of significant disputes relating to dilapidations between landlords and tenants is increasing.  Dealing with dilapidations is not rocket science, the law is pretty simple.  Set out below are some of the things that you need to consider.

Almost inevitably, in the event of a dilapidations claim, there will be an express lease.  The terms of that lease will specify the condition in which the tenant must surrender his property to a landlord.  Specific reference may be made within the lease to a schedule of condition recorded by a surveyor when it was first signed.  Alternatively, the tenant may be required to bring the property back to a specified condition in the lease, often described as a “good” and / or “reasonable” condition.

Lawyers are often consulted by tenants seeking to avoid their obligations and / or by landlords seeking to enforce those obligations.  Here are some of the common pitfalls.

If a landlord forfeits the lease (which often happens if he takes possession of the property during the term), the covenants within the lease are frequently discharged and that includes the tenant’s covenants to repair.  Tenants seeking to avoid their obligations will often seek to allege forfeiture; landlords need to be careful to avoid accidental and / or unintended forfeiture.

To successfully enforce a dilapidations claim, a landlord must ensure that he follows the procedure set out within the lease, as failure to do so may frustrate his claim.

A tenant should consult his lease before it comes to an end.  Most tenants can attend to the reparation of any dilapidations, less expensively than a landlord will.  If there is a possibility of a substantial dilapidations claim, it would be wise for a tenant to have the premises prepared prior to inspection by the landlord’s representative.

A landlord cannot claim more for the cost of repair of dilapidations than the dilapidations themselves cause the premises to diminish in value.

By way of example, consider the position of an old warehouse situated on derelict land suitable for redevelopment.  The warehouse requires a new roof but the cost of the new roof will not significantly appreciate the value of the property because of its development potential.  In those circumstances, the tenant would be absolved from the obligation to place a new roof on the building.

Most commercial landlords are extremely familiar with the law pertaining to dilapidations.  Tenants of large premises should consult their leases and their lawyers at an early stage, prior to the end of the lease, if they do not intend to renew and should develop strategies to limit their obligations before the lease comes to an end.