Dilapidations

What does Dilapidations mean?

The term dilapidations refers to a property’s state of disrepair where there is a legal liability for the condition of disrepair. This legal liability usually arises from express covenants contained within a lease. However, it may be a consequence of the tort law or an implied contract.

Common Causes:

Landlords and Tenants frequently begin leases without considering the condition of the property at the beginning of the tenancy. If these precautions aren’t taken, there are no plans to maintain the building in accordance with the tenants repairing covenants during the period of occupation.
The Landlord and Tenant may renew the original tenancy without necessarily considering the condition of the property. This means the landlord could overlook the implications of any improvements or alterations, which might have been undertaken.

Therefore, it is only when this landlord/tenant relationship ends that attention will focus on any dilapidation issues with the building. Unless the parties to the lease have had the foresight to consider a dilapidations procedure well before the end of the tenancy, this is very often the starting point for a dilapidations dispute.

A Schedule of Dilapidations: What does it mean?:

A schedule of dilapidations records the works required to be done to a property, so it equals the state of the property when the tenant took up residency. This should have been put in if the tenant had complied with its covenants or obligations contained within the lease of the property.

To understand your position:

Landlords need to be sure that they get the best advice to avoid drawn-out and expensive settlements.
Tenants need proper planning and budgeting to ensure there are no unwelcome surprises at lease end.
Both sides benefit from a considered approach which ideally starts before the lease is signed.

What does a “Yield Up” clause mean?:

When a tenant yields up the property, they simply return it to the landlord at the end of the lease and has removed all fixtures and fittings. This clause is key to outlining what is required of the tenant before they yield their tenancy of the property.

Dilapidation usually occurs when one or more of the following requirements are breached:

Repair: Any articles which have been broken are fixed.
Decoration: The property is decorated to a standard set before the lease.
Reinstatement: All property has been reinstated.
Statutory Compliance: Ensure the property is cleansed and compliant with current regulations.

Must a landlord serve a schedule of dilapidations at the end of a tenancy?:

There are two types which can be served at different times during and after the tenancy:

An interim schedule: This is served during the term of the tenancy; it is issued if the landlord is concerned that the tenant has not carried out proper maintenance on the property. This is to remind the tenant of their obligations and to clarify what is expected before the situation escalates. This protects both the landlord and the tenant from paying higher repair costs later.
A terminal schedule: This is usually served within the last 18 months to three years of the lease at or shortly after its end. It goes into greater detail, listing items of disrepair that need to be fixed before the end of the tenancy. However, the tenant will not be entitled to undertake this work themselves after their right of occupation has ended.

How to serve a Schedule of Dilapidations:

A landlord should follow a procedure, the schedule must also specify:

The terms that have been allegedly breached.
The Landlord’s opinion of what is required to return the building to a satisfactory condition.
A cost schedule for the necessary remedial works.

The Royal Institution of Chartered Surveyors issues guidance on Dilapidations and gives practical advice to surveyors. This entails how to prepare, serve and respond to dilapidations claims, both before and after the commencement of proceedings.

Is it complicated and costly?:

Dilapidations is unique to the UK and is enforceable in a court of law. Clearly a landlord will interpret disrepair in an entirely different way to a tenant and the legal interpretation of lease clauses can vary from case to case.

How to approach dilapidation claims:

The state of the property market is key to the approach and outcome of a dilapidations claim. It also depends upon whether the demand for such property space is strong or not.

In weak market conditions:

An oversupply of space or a lack of demand results in tenants being able to negotiate higher incentives, lower rents and more flexible lease terms when taking a new lease.
A shrewd tenant will also negotiate their end of term options early.
Therefore, Landlords will look at the dilapidations issues early and take measures to avoid lengthy vacant periods.

In strong market conditions:

Supply is often limited which means landlords are in a good position to negotiate strong terms.
Tenant should look beyond the rent and initial incentives when negotiating a lease and should look at their liabilities over the duration of their tenancy.

A Section 18(1) Valuation:

This provides a statutory cap for damages, by calculating the value of a landlord’s lost on account of the breaches of lease covenant. It is otherwise known as the ‘diminution in value’ of the landlord’s interest.

There are two parts to section 18(1):

The first limits the claim to the value of the loss the landlord has experienced through breaches of the covenant to repair.
The landlord cannot recover more than compensation for the loss of value to the property caused by the disrepair.

What is the Dilapidations Protocol?:

The Dilapidations Protocol was formally adopted by the Court Rules on 1st January 2012 and is now Law in England & Wales. The aim of the Protocol is to ensure that a claim is reasonable and understandable, in hope of reaching a settlement before court proceedings are issued. Where litigation cannot be avoided, then the Protocol facilitates the efficient management of the process.

The Pre-action Protocol: This is produced by the Property Litigation Association (PLA) in consultation with the Royal Institution of Chartered Surveyors (RICS). It should be used at the expiry of the lease term in all damage caused by breaches of a tenant’s repairing obligations.

The Courts: The Protocol is now treated as the normal and reasonable approach to pre-action conduct by the courts. Non-compliance might bring sanctions against the party concerned, so it is essential that surveyors, landlords and tenants understand the implications of dilapidations fully before making a claim.

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