Dilapidation Claims

An interim dilapidations claim is a legal action initiated by a landlord during the lease term against a tenant for breaches of repairing obligations.

It typically involves notifying the tenant of observed damages or neglect to the property and requesting prompt rectification to maintain the property's condition.

A terminal dilapidations claim is a legal action initiated by landlords against tenants to recover the costs associated with repairing any damage or neglect to the leased property beyond normal wear and tear.

Terminal claims crystallise at the end of a lease term when the tenant is leaving the property and arise when the property is not returned in the condition required in accordance with the commercial lease.

The landlord may seek compensation for repairs necessary to return the property to its original condition as per the terms of the lease agreement.

Terminal dilapidations claims typically involve landlords seeking reimbursement from tenants for various expenses, including lost rental income, service charges, and costs incurred to complete the necessary works, provided these costs are deemed reasonable.

To bring a dilapidations claim it is essential to prepare and serve a schedule of dilapidations on the tenant.

A schedule of dilapidations should carefully itemise the landlord's claim and identify which commercial lease obligations the tenant has failed to comply with.

There are two kinds of schedule of dilapidations: interim and terminal.

The primary difference between interim and terminal schedules of dilapidations lies in their timing and purpose:

1. Interim Schedule of Dilapidations: issued during the term of the lease and serves as a notice to the tenant regarding observed breaches of repairing obligations.
2. Terminal Schedule of Dilapidations: issued towards or shortly after the end of the lease.

Our property litigation lawyers collaborate with experienced surveyors who specialise in creating or assessing Schedules of Dilapidations. We can provide recommendations for these surveyors to assist you in your needs.

The tenant will have an opportunity to respond to the schedule of dilapidations prior to any Court proceedings being issued.

Upon receiving a schedule of dilapidations and a Quantified Demand from the landlord, the tenant has 56 days to respond, either agreeing or disputing the alleged breaches and specified remedial works.

Both parties, along with their respective professional advisors, such as surveyors and solicitors, are advised to meet on a 'without prejudice' basis within 28 days of the tenant's response. This meeting aims to resolve the dilapidations claim or at least narrow down the disputed issues; it can occur before the tenant's response if agreed upon.

Additionally, the parties are encouraged to consider alternative dispute resolution methods such as mediation or early neutral evaluation.

If no settlement is reached, the landlord must provide a more detailed quantification of losses, either through a formal diminution valuation or an account of actual or expected expenditure and financial costs.

Should the tenant wish to raise a section 18 defence or any other defence related to diminution in value, they must confirm this within 56 days of receiving the detailed quantification of losses.

Section 18 Landlord and Tenant Act 1927 pertains to the statutory mechanism for valuations assessing the loss in value to the landlord's interest due to the tenant's failure to undertake repairs.

After this, both parties must engage in a 'stocktake' period before the landlord resorts to submitting their claim for determination by the court.

Our client is a landlord of a significant portfolio of commercial properties.

Case Overview:

One of the properties is located in Northumberland and was leased to Marks & Spencer's PLC (M&S). M&S assigned the lease to The Factory Shop Limited and M&S entered into a Deed of Guarantee and Indemnity in respect of that assignment.

The Factory Shop entered into a CVA, and the CVA included a provision for the surrender of the lease and compromised the company's liability for terminal dilapidations.

The CVA cut down M&S's secondary obligations in the guarantee, meaning that M&S had no liability under the guarantee in respect of the terminal dilapidations, but the CVA could not and did not cut down M&S's primary obligations in the guarantee, meaning that M&S remained liable for the dilapidations in full as if the CVA had not existed.

The lease was subsequently surrendered, and our client moved to address terminal dilapidations, carrying out repair works to the value of £130,000

Laura Pile, a Partner in the Property Litigation team said "This was a complex matter where we argued that the indemnity was not compromised by the CVA."

Our client has a rental portfolio across England and Wales.

Case Overview:

We advised them both during the term and at the term end in relation to the repair and condition of the property. To avoid the section 18 cap, an inspection was undertaken during the term to identify items of disrepair.

Various works were then undertaken during the term to remedy the disrepair and the cost of these works will be recovered from the landlord as a debt.

A Quantified Demand is a document issued by a landlord to a tenant detailing the financial costs associated with repairing any damages or breaches of lease obligations identified in a schedule of dilapidations.

The timeframe for a landlord to make a dilapidations claim typically depends on the terms outlined in the lease agreement.

However, it's common for landlords to initiate a dilapidations claim either towards the end of the lease term or shortly after the tenant has vacated the property.

The landlord is expected to provide the schedule of dilapidations to the tenant within 56 days of the lease's expiration, although this timeframe isn't legally binding.

If the tenant neglects property maintenance or fails to restore alterations, the landlord can seek reimbursement for remedial expenses and possibly claim rent losses during the repair period.

In court, the losing party may incur substantial costs and professional fees.

Moreover, non-compliance with the protocol steps can influence the court's decision on cost responsibility.