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Dilapidatiaons – A legal overview

What are dilapidations?

Dilapidations generally refer to items of disrepair that are covered by covenants given by a tenant to a landlord in a formal lease of commercial property.  In this article, the term “dilapidations” covers breaches of the tenant’s covenant relating to the physical condition of the premises when the lease comes to an end.

Which other tenants’ covenants are generally relevant to the tenant’s liability for dilapidations?

1. Repairing Covenants

2. Decorating Covenants

3. Covenants to comply with statute

4. Covenants to yield up and any related obligations that specify the state in which the tenant is required to leave the premises at the end of the term

5. Reinstatement requirements – that relate to alterations carried out by the tenant (and usually which apply at the end of the term)

What are the landlord’s remedies?

The remedies available to a landlord depend on the specific terms of the lease and whether or not the term of the lease has expired or not. There are certain statutory restrictions on the landlord’s remedies for breach of a tenant’s repairing covenant.

In addition to the legal position regarding remedies, there may be a practical consideration as to how and when a landlord should take enforcement action.

1. Damages.  A tenant’s failure to comply with its repairing covenant could entitle the landlords claim damages. However, the landlords right to claim damages for breach of repairing covenant by the tenant may be restricted by statute;

2. Forfeiture. Forfeiture is only available for breach of covenant by the tenant. If the landlord has an express right of re-entry. In practice, it would be extremely rare for a commercial lease not to contain such a right.  There are restrictions on when a landlord is entitled to forfeit Fred breach of repairing covenant.

3. Self-help. Modern commercial leases often contain provisions which entitle the landlord to enter the property during the term of the lease, to carry out any repair work and then to recover the cost of doing so from the tenant. Such clauses are known as Jervis v Harris clauses.

4. Specific performance. It is established law that specific performance is, in principle, available in respect of the repairing covenants in leases. This means that a landlord can enforce its right for the tenant to carry out certain repairs. Normally, other remedies will be more suitable.

Practical Considerations

1. Extent of repairing obligations. The starting point is always to consider (for the landlord) the true extent of the repairing obligations; this will require a careful analysis of the lease which governs the relationship between landlord and tenant;

2. Establish the extent of the breach.  Commercial leases usually reserve the right to the landlord (and anyone authorised by) to enter onto the property for a broad range of purposes. The landlord would normally need to arrange for a surveyor to examine the premises so that the landlord can establish the precise extent of the breach of the repairing covenant. The survey should document any breaches that are discovered an inspection in a schedule of dilapidations.

3. Terminal dilapidations. In relation to a case of terminal dilapidations, there was a pre-action protocol for claims for damages in relation to the physical state of commercial property at the termination of the tenancy (“the dilapidations protocol”), which prescribes a timetable for dealing with disputes. This requires that the landlord should serve a schedule of dilapidations within a reasonable time after the end of the term, which would normally be not more than £56 and that the tenant should be given a reasonable time in which to respond (usually 56 days).

4. Market conditions. The state of the letting market is often a factor in the landlord’s decision on how to enforce a breach of the tenant repairing covenant. The landlord may be reluctant to forfeit a lease for breach of repairing covenant in a poor economic cycle if the tenant is otherwise complying with its covenants.

5. Lease renewals. It is still important for the landlord to consider taking action in respect of terminal dilapidations where the occupier has a statutory right of renewable under the Landlord & Tenant Act 1954.  Principally, this is because if the lease renewal is completed without the accrued dilapidations being dealt with, there is a risk that the baseline for the standard of repair has dropped and the tenant will be under a reduced repairing obligation.

6. Other parties. Is there a guarantor in place who might be liable if the tenant fails to comply with its obligations? In some cases, the landlord may be able to pursue a former tenant as a firm tenant may remain liable following assignment under the terms of an authorised guarantee agreement, all due to privity of contract if the lease is not a “new lease” for the purposes of statute.

From the above, it can be seen that dilapidations issues are extremely complex and specific advice must be sought by all landlords or tenants before a schedule of dilapidations is served or in the case of a tenant, upon receipt of a schedule.