for landlords
A guide to dilapidations
How does the dilapidations process work?
What should landlords be aware of and how can Carter Jonas help?
Our Experience
What are dilapidations?
+
+
+
+
If the tenant or their surveyor agree with the breaches set out in the schedule but contest the value of the claim, the landlord usually has two options:
Usually, a tenant will instruct a surveyor to review
the schedule and negotiate a lower settlement to mitigate their liability.
In broad terms, a costed schedule of dilapidations is an estimate of the potential loss to a landlord resulting from the tenant’s breach of covenants. Following the service of a schedule, the tenant can choose to complete the specified works, if sufficient time remains on the lease, and/or agree to pay a financial sum by way of compensation to the landlord for the loss.
How does the dilapidations process work?
What are dilapidations?
If a tenant fails to comply with the terms of the lease, a landlord can instruct a building surveyor to prepare a schedule of dilapidations to document the breach, appropriate remedy and associated costs (where appropriate). Depending on the timing, the tenant can then undertake the works or use the schedule as a basis to negotiate a cash settlement in lieu of undertaking works.
Commercial leases contain covenants that often require tenants to repair and decorate the property, in addition to complying with statutory requirements and removing any alterations, if required by the landlord.
Dilapidations is a term that refers to the condition of a property both during the term and at expiry of a lease.
In most cases, the costs for preparation and service of the schedule are recoverable from the tenant, subject to the relevant lease clause.
Where a settlement cannot be agreed it may be necessary to consider formal methods of Alternative Dispute Resolution (ADR), such as mediation.
As a last resort, if ADR is unsuccessful the matter can be referred to the courts to preside over the dispute via litigation. At all parts of the dilapidations process, it is important to ensure good legal advice is obtained.
Specify and tender the works to demonstrate costs have been competitively tendered
Negotiate a reduced settlement to be agreed by the parties
2
1
Prior to execution of the lease
Whilst dilapidations generally serve to protect a landlord from ‘loss’, there are a number of risks that need to be considered to maximise recovery of those losses.
What should landlords be aware of and how can Carter Jonas help?
During the lease term
Lease end
explore the timeline for more information
Points landlords should be aware of
We acted on behalf of a company who was acquiring another business and wanted to know in advance what the leasehold dilapidations liability would be for the building that the business occupied. Our inspection and report helped our client to make an informed decision about the likely level of leasehold dilapidations liability they would inherit as part of the proposed business acquisition.
OUR EXPERIENCE
BACK TO TOP
BACK TO TOP
BACK TO TOP
BACK TO TOP
NEXT SECTION
NEXT SECTION
NEXT SECTION
BACK TO TOP
NEXT SECTION
For further information, please contact one of our experienced building consultants
Richard Love
Contact us
Head of Building Consultancy
07780 667010
EMAIL ME
EMAIL ME
07879 430793
Bristol
Tom Lowe
EMAIL ME
07831 628737
Cambridge
Keith Fuller
EMAIL ME
07887 834071
Oxford
Richard Harris
EMAIL ME
07801 666128
London
Matthew Reading
EMAIL ME
07795 047456
Leeds
David Robinson
SCROLL TO VIEW FULL GUIDE
During a lease term tenants may undertake several refurbishments and original fixtures and fittings may have been replaced. Having a reinstatement specification provides greater certainty of how the demise should be handed back to the landlord at expiry.
Reinstatement specification
Ensure the extent of the premises and repairing obligations are clearly defined within the lease. Any ambiguity can provide opportunity for the tenant to contest the recovery of costs for elements outside of their contractual liability.
Clearly define the premises and repairing obligations
Company voluntary arrangements (CVAs) are becoming increasingly prevalent within the retail market. Dilapidations are usually allocated a value of £1 under the CVA process as the loss is yet to be formally ascertained. Not only does this prevent recoverability of dilapidation costs but reduces the voting power of a landlord as a creditor. It is essential that landlords monitor the performance of their tenants and where risk is identified consider the use of an interim schedule of dilapidations to ascertain the loss in respect of repairs.
Company voluntary arrangements CVAs
It is important to accurately document alterations made by the tenant and ensure that records are obtained and kept demonstrating compliance with statutory regulations. At the end of lease these documents are used to demonstrate reinstatement required.
Tenant alterations
Some leases contain a specific clause, called a Jervis v Harris clause. A well drafted clause can grant the landlord a right to enter the property to complete the works and recover the costs as a debt. It is important to note that it is essential that the notices are served correctly. We recommend that legal advice is sought prior to considering this approach.
Jervis v Harris
If the tenant fails to carry out routine repair and maintenance to the fabric of the building during the term, a landlord may look to serve an interim schedule of dilapidations to formally notify the tenant of their breaches under the lease. These breaches need to be significant and have a material impact on the landlords reversion.
Interim schedule of dilapidations
Tenants are usually obligated to complete repairs and maintenance to the property throughout the lease term. If the tenant is not completing the maintenance agreed under the lease, a diligent landlord may choose to remind them of their responsibilities on an informal or formal basis.
Tenant repairs during the term
It is important to understand the landlords repairing liability during the term as a failure to adhere to the landlords covenants could prevent recovery costs for any defects resultant of this failure to maintain. Most leases also enable the landlord to recover these maintenance costs from the tenant via the service charge provision.
Landlords repairing liability
How Carter Jonas can help
Schedule of condition
Lease terms
Our surveyors are experienced in the preparation of detailed schedules of condition which can be used to accurately record the condition of the property prior to commencement of the term.
Our professionals review proposed lease terms to advise on their potential interpretation and ensure that the premises are adequately described to limit ambiguity at a later stage and potentially frustrate the dilapidations process.
Points landlords should be aware of
How Carter Jonas can help
Tenant alterations
Interim schedule of dilapidations
Landlord repairs
Our building consultancy team can assist in the preparation of a formal licence for alterations to record the works proposed by tenants and subsequently monitor progress to ensure they are completed to the landlord’s satisfaction with the required completion documentation.
If landlords have concerns that a tenant is not performing their repairing obligations our building consultancy team can advise on the contractual rights to enforce repairs during the term and complete an interim schedule of works to identify and set out the works required.
Where a landlord is required to maintain aspects of the property our building consultancy team can inspect and prepare planned preventative maintenance schedules to identify and set out future works that are required over the lease term to be captured within annual service charge budgets.
PREVIOUS SECTION
PREVIOUS SECTION
PREVIOUS SECTION
PREVIOUS SECTION
How Carter Jonas can help
Expert witness
Terminal schedule of dilapidations
Professional advice
Asbestos
Statutory requirements
Mechanical and electrical (M&E)
Contractual limitations
Reinstatement clauses
Section 18 of the Landlord and Tenant Act 1927 (LTA)
If a dispute cannot be agreed between the two parties’ surveyors our building consultancy team can provide independent expert advice to achieve an amicable result for both parties.
Our team can inspect and prepare a detailed terminal schedule of dilapidations and where required coordinate and manage involvement of other specialist consultants. We recommend that landlords instruct the preparation of a schedule of dilapidations 12 months prior to lease expiry to ensure the best results are obtained. It can also assist in negotiation of a new lease with the existing tenant.
Our building consultancy team can review the relevant documentation and provide advice on the impact of existing lease terms including the recoverability of fees and requirement for specialist consultants.
Asbestos risks are often overlooked when preparing schedules of dilapidations. The costs associated with the removal and remediation of poorly maintained asbestos products can be significant. Where relevant, we recommend that an up-to-date asbestos management plan is requested at term end to ensure the tenant has completed any recommended works identified by the asbestos surveyor.
Tenants are usually required to comply with statutory requirements under the terms of their lease. This can include the provision of asbestos management plans, emergency lighting and electrical certifications at termination of the lease.
Where a tenant is responsible to maintain the M&E elements of a building during their term, it is essential that a specialist M&E consultant is instructed to identify any deficiencies or essential maintenance to equipment that can be recovered under the terms of the lease. The introduction of the Minimum Energy Efficiency Standards (EPC), which prevents landlords from letting a property with an EPC rating lower than ‘E’ makes it increasingly important to ensure works are completed or costs recovered in respect of poorly maintained or redundant equipment that could otherwise be claimed under the lease.
Some leases contain provisions to limit the time in which a claim for dilapidations can be sought. Whilst leases that do not limit the period for bringing a claim there is a statutory limit of six years (12 years if the lease is executed as a deed) and the dilapidations protocol suggests a reasonable time limit of 56 days from expiry of the term. We would recommend instructing a terminal dilapidations 12 months prior to lease expiry.
Most leases require the reinstatement of tenant alterations as standard, however some leases contain clauses that require the landlord to confirm their requirements for reinstatement prior to expiry of the term. Failure to do so can exempt the tenant from their liability so timing is critical.
The LTA contains a defence in respect of repairs which comes in two forms:
Points landlords should be aware of
Diminution in the value of the reversionary interest – Damages for a breach of covenant shall not exceed the value of the reversion of the premises. This highlights the importance of ensuring repairs are completed throughout the term. Often limited to cost of repair but most valuers take an overview now which includes reinstatement of alterations, decorations, statutory obligations and yielding up. A very specialist area that requires strong experience to deliver a credible and robust report, which is open to scrutiny by the opposing side.
Damages can not be recovered for a breach of covenant at termination of the lease if the premises are to be demolished, structurally altered or re-developed at lease end.
1
2
PREVIOUS
SECTION
BACK TO TOP
NEXT
SECTION
At Carter Jonas, our professionals can assist landlords throughout the process due to their diverse range of experience within the commercial property industry. Our building consultancy team provide the following services to ensure landlord’s risks are protected at every stage of the process:
How much is my liability?
Essential client question we answered:
Dilapidations liability assessment
Service we provided:
Our professionals inspected and prepared a terminal schedule of dilapidations on behalf of the landlord of a high street retail property in Bristol. The initial claim amounted to £88,000 representing approximately £38.71 psf. Following negotiations with the tenant's surveyor, we were able to secure a settlement of £69,000 (£30.40 psf) which equated to 78.5% of the original claim.
How do I protect my interests when negotiating with my tenant on a dilapidations claim?
Essential client question we answered:
Dilapidations advice, acting on behalf of the landlord
Service we provided:
How Carter Jonas can help
Points landlords should be aware of
How Carter Jonas can help
Points landlords should be aware of
EMAIL ME
07879 430793
Bristol
Tom Lowe
EMAIL ME
07831 628737
Cambridge
Keith Fuller
EMAIL ME
07795 047456
Leeds
David Robinson
EMAIL ME
07801 666128
London
Matthew Reading
EMAIL ME
07887 834071
Oxford
Richard Harris
2