The term “dilapidations” tends to conjure up visions of run-down buildings with broken windows, so it is not surprising that the term causes some confusion in relation to leasehold premises, particularly those which have been well-maintained by the tenant.
Dilapidations generally refers to costs which relate to reinstating the property into its original pre-let state, which can cover anything from repairs to removing alterations added by the tenant. A claim for dilapidations is not intended to profit the landlord – the aim is to return the landlord to the same position as if the tenant had performed its obligations under the lease.
This note looks at the key clauses relating to dilapidations and highlights points which both landlords and tenants should be aware of.
Check the wording
In order to assess whether a claim for dilapidations can be made (and succeed) careful scrutiny of the relevant clauses containing the obligations to repair, redecorate and reinstate is required. Apart from the lease, covenants may be contained in supplemental documents such as a licence for alterations, so these will need to be checked and assessed to establish the exact extent of the tenant’s obligations.
Covenants to repair and redecorate
- Certain covenants to repair are more onerous than others so it is important to check the wording of these covenants to assess the standard of repair expected. Most leases require the tenant to keep the property in "good repair", "good and tenantable repair" or "substantial repair", all of which relate to a similar standard.
- However, a covenant to “keep” the property in good repair can require the tenant to put the property into a better state of repair if it is in disrepair at the start of the lease. Other wording requiring a higher standard than just keeping the property in “good repair” is where the requirement is to keep it in “good repair and condition”.
- Timescales relating to interior decoration should be adhered to as most leases expect redecoration to be carried out at regular intervals e.g. once every three or five years. In addition, the lease will often require the tenant to redecorate shortly before the end of the lease, usually in the last year of the term.
Schedule of Condition
- This is recommended for both the landlord and tenant as it records the state of the property at the beginning of the lease and will be used to determine the extent of the repairs - most contain a written description as well as photographs.
- The Schedule will often contain provisions which clarify or modify repairing obligations; for example in a short term commercial lease the tenant may want to limit its liability by stating that it will keep the property in no better condition than that shown in the Schedule, as opposed to a wider obligation to keep the property in good repair.
Covenants for reinstatement
- These will state whether the landlord will require reinstatement or whether the works can remain at the end of the lease. The commonest reinstatement provisions at the end of the tenancy are:
- reinstatement is automatically required
- reinstatement is automatically required unless notice is given to say otherwise
- reinstatement is only required if the landlord gives notice to reinstate
- If there is no obligation to reinstate then the tenant can hand back the property with any alterations it has made – it cannot be made to reinstate any (lawful) alterations.
- Most reinstatement provisions require the landlord to serve the tenant with a notice specifying the time limit for reinstating alterations. Notice periods can be easy to overlook (particularly with a portfolio of properties) so the landlord should ensure it is has an effective reminder system which flags up these critical dates, otherwise it will lose the right to require reinstatement.
- Any licence for alterations should be examined for reinstatement provisions as problems can arise if they differ from those in the lease – ideally they should be mirrored in both documents. If not, check whether the reinstatement clauses in the licence will override those in the lease.
Compliance with laws
- This covenant gives some “teeth” to the repair and alterations covenants to make it clear that the tenant must comply with statutory requirements. Specifically, the Construction (Design and Management) Regulations 2015 apply to all construction works (there is no exclusion for small projects) including alterations, redecoration and repair.
- Most modern leases contain a Jervis v Harris clause which enables the landlord to re-enter a property to carry out repairs if the tenant defaults. Under this type of clause, the landlord has to serve notice on the tenant listing items which are in disrepair and requiring it to comply with its repairing obligations.
- The tenant has to be given a reasonable time to carry out the repairs (usually within two or three months) and if this does not happen then the landlord can enter the property to carry out those repairs and claim the costs from the tenant.
- The benefit to the landlord is that if the landlord exercises its right to enter and carry out work pursuant to this clause, its claim for the cost of the work is treated as being the recovery of a debt rather than a claim in damages. This enables the landlord to avoid the statutory restrictions relating to damages.
Landlords and tenants should keep dilapidations in mind throughout the term of the lease to ensure there are no nasty surprises at the end - claims for dilapidations can be very costly as they can easily amount to over 12 months’ rent. Landlords rely on successful claims for dilapidations to be able to return their property into a lettable state, for example by insisting on the removal of partitions and making good, as well as ensuring their assets are properly maintained. The extent to which a landlord can insist on this and whether the tenant can object, all starts with the wording in the lease – the devil is most certainly in the detail.
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