During and at the end of a commercial lease, it’s often the case that a dispute arises between the landlord and the tenant about the state and condition of the property and the related rights and duties that each are meant to fulfil during the lease period. In this article, our commercial property dispute solicitors will provide you with an overview of the dilapidations claims process so that you’re equipped with the knowledge about how to deal with a problem of this kind if it arises.
Contents:
- What is a dilapidations claim?
- What do dilapidations claims cover?
- Types of dilapidations claims
- Who can bring a dilapidations claim?
- What evidence do you need to bring a dilapidations claim?
- The schedule of dilapidations
- How is a dilapidations claim assessed?
- How to make a dilapidations claim
- The process for making a dilapidations claim
- How long does it take to resolve a dilapidations claim?
- Legal restrictions on damages for dilapidations claims
- How long does a landlord have to make a dilapidations claim?
- How can a tenant challenge a dilapidations claim?
- Who has to pay the costs of a dilapidations claim?
- How you can prevent commercial property disputes in the future
- Summary
What is a dilapidations claim?
A dilapidations claim is a type of claim that arises when a commercial landlord and its tenant disagree about the extent to which repair, reinstatement and redecoration obligations have been complied with during the lifetime of the lease. They can spiral quickly and need to be handled with care to minimise expense and/or a potential court action.
What do dilapidations claims cover?
There are a few key things that a dilapidations claim can cover. Claiming for repairs and maintenance is a common one and can include the costs of making good any damage that’s occurred while the tenants were in occupation under the lease, as well as redecorating. A landlord might also want the tenant to carry out work to put the property back into its original state, for example, if they’ve added or removed partition walls.
A dilapidations claim could also cover the costs of professional cleaning and any loss or rent while any repairs or other work is being carried out.
Types of dilapidations claims
There are two different types of dilapidations claim: interim and terminal. Both types are described below:
- Interim claims: These types of claims are made by the landlord during the lifetime of the lease with a view to keeping tenants on track with their obligations and ensuring that any non-compliance is dealt with swiftly and at an early stage.
- Terminal claims: After the lease has ended would be the appropriate time to make a final dilapidations claim. The landlord is certain at that point about what breaches need to be rectified, the costs of remedial work and also any financial losses they might have to bear. This could include, for example, professional fees, loss of rent for the period within which work is being undertaken and payment of service charges and utilities rates.
Who can bring a dilapidations claim?
A dilapidations claim must always be started by the landlord.
What evidence do you need to bring a dilapidations claim?
The Civil Procedure Rules (CPR) state that the Dilapidations Protocol (which we’ll discuss in more detail in the next section) must be followed in disputes of this kind. Landlords should instruct a surveyor to inspect the property and prepare a document called a ‘schedule of dilapidations’.
The schedule of dilapidations
The schedule sets out the landlord’s grounds for bringing the claim because it contains a list of any alleged breaches of covenant (obligations) by the tenant in relation to the condition of the property, along with details of the repair, redecoration and reinstatement work that needs to be undertaken to remedy the breach or breaches. The schedule should also include the landlord’s estimated costs involved in carrying out these works. A ‘Quantified Demand’ should also be included, which gives further details and supports the landlord’s claim for compensation. The landlord should serve a dilapidations claim within 56 days of the end of the lease.
How is a dilapidations claim assessed?
A dilapidations claim is assessed by looking at what repairing obligations are in the lease and then identifying whether there have been any breaches of these obligations. Doing so usually involves a surveyor with specialist knowledge of dilapidations claims carrying out a thorough examination of the property, both internally and externally, before they prepare the schedule of dilapidations.
How to make a dilapidations claim
The Dilapidations Protocol sets out a roadmap for how the court expects the process for a dilapidations claim to run. The process is summarised below and it’s worth highlighting here that the protocol says that it covers terminal dilapidations claims rather than interim. There’s no set procedure for dealing with interim claims unless the lease itself outlines a particular procedure, but it would be wise for the landlord to consider the protocol when making an interim claim.
The process for making a dilapidations claim
- Once the landlord has sent a schedule of dilapidations and Quantified Demand to the tenant, the tenant must reply within the following 56 days, confirming whether the alleged breaches and stated remedial works are agreed or disputed.
- The landlord and tenant (along with any professional advisors they may have instructed, most likely their surveyor and/or solicitor) are then encouraged to meet on a ‘without prejudice’ basis to try and resolve the dilapidations claim or failing that, at the very least, try to narrow the issues in dispute. This meeting should ordinarily take place within 28 days following the response being received – although, where the parties agree, it can also take place before the response is provided.
- The parties are also encouraged by the protocol to think about whether it might be appropriate for the claim to be referred to some sort of alternative dispute resolution process. This could take the form of mediation, early neutral evaluation or expert determination.
- In cases where settlement can’t be reached, the landlord must then provide a more detailed quantification of losses. This would be through the production of a formal diminution valuation or an account of actual or expected expenditure and financial costs.
- If the tenant wants to raise a section 18 defence (or any other defence related to diminution in value), then this must now be confirmed – usually within 56 days of the more detailed quantification of losses being provided.
- The parties must then create some time to take stock (referred to in the protocol as ‘stocktake’) before the landlord goes ahead and takes the last resort step of submitting their claim for determination by the court.
How long does it take to resolve a dilapidations claim?
How long it takes to resolve a dilapidations claim depends on the circumstances of each case and many different factors can influence this. The preparation of the schedule of dilapidations could take a few weeks initially and will most likely take longer if the property is large. It can then take a few weeks – or even a few months – for any negotiations to take place once the tenant has received it and gone through it with their solicitor and surveyor. If negotiation doesn’t successfully resolve matters, alternative dispute resolution (ADR) may be attempted in the form of arbitration or mediation and again, this can take a few weeks or possibly a few months.
If none of the above resolves the claim and court proceedings are started, further time will be taken for a judge to ultimately decide what happens. Court action can take anywhere in the region of a few months to a year or more and if the case is complex, it will definitely be at the longer end of the scale.
Legal restrictions on damages for dilapidations claims
Section 18 (1) of the Landlord & Tenant Act 1927 provides a statutory cap which means that the damages a landlord is entitled to receive for disrepair will be the lower of the cost of the remedial works or the effect on the property’s value. It’s crucial to highlight here that if the property is going to be demolished, or substantially reconfigured, the damages awarded may be nil.
How long does a landlord have to make a dilapidations claim?
The landlord should serve the schedule of dilapidations upon the tenant within 56 days of the end of the lease but this isn’t a legally enforceable restriction. Strictly, with it being a claim for breach of contract, a claim could be made within 6 years (or potentially 12 (if the lease is also a deed)).
How can a tenant challenge a dilapidations claim?
A tenant on the receiving end of a dilapidations claim is well within their rights to challenge it if they’re unable to settle the matter with their landlord. If so, upon receipt of the schedule of dilapidations, a tenant should take the following steps:
- Provide a formal response within 56 days of receipt of the claim, covering everything listed in the schedule and setting out why items aren’t agreed, along with the tenant’s detailed position. One of our commercial property dispute solicitors can help you challenge a dilapidations claim.
- Object to the schedule of costs of repairs at an early stage if it appears to be too high compared to the loss in value caused to the property – instructing their own surveyor to inspect the property and produce a valuation if needed.
Who has to pay the costs of a dilapidations claim?
If the tenant has failed to keep the property in good repair or has failed to reinstate alterations, the landlord should be able to recover the costs of remediation and potentially claim damages for loss of rent while the works are carried out. If the matter ends up in court, significant costs and professional fees will be payable by the losing party and also, the protocol warns parties that the court will take into account the extent of their compliance with the steps in the protocol when making orders about who should pay costs.
How you can prevent commercial property disputes in the future
Making sure that the lease is properly drafted by a commercial property solicitor right from the outset is the best way for a landlord to minimise or prevent disputes in the future. Clear, non-ambiguous clauses are very helpful when it comes to this, as is making it plain what constitutes wear and tear as opposed to damage. Maintaining a regular schedule of physical inspections of the property is also wise, as well as ensuring that proper notice is given to the tenants of these and that any potential problems that are spotted are raised early in an suitable manner.
Summary
Due to the fact that dilapidations claims can escalate quickly and can become technically complex and time consuming, seeking professional advice at an early stage, whether you’re a landlord or a tenant, is strongly recommended.
