What are dilapidations?

Commercial leases contain obligations on a tenant has to maintain, repair, and sometimes restore a property to its original condition. The landlord can enforce these obligations, particularly at the expiry of the lease. This process is called dilapidations. The aim of the landlord is to get the premises in best possible condition at the tenant’s expense and the tenant will aim to achieve the minimum required under the lease in order to avoid damages.

Early negotiations and lease obligations

It is crucial to consider the specific wording of the repair covenants in the lease. The difference, for example, between needing to “keep in repair” and “keep in good repair and condition” will have an impact on the level to which the tenant is expected to repair the premises.

Another example is how the word “keep” will be interpreted in this context. The courts have ruled that where a premises were not in good repair at the start of the lease, a tenant with an obligation to keep the premises in good repair will also have to put the premises into good repair in the first place in order to comply with the covenant.

Tips for tenants:

• Ask the landlord to carry out any necessary repairs before the lease begins
• Request that the lease limits your repairing obligations and takes into account the state of premises at the outset
•  Commission a schedule of condition to document the original condition of the premises.
• Check the wording used in the repair clauses of lease

Tips for landlords:

• Use broad repairing covenants such as “keep in good repair AND condition”. These types of clauses are more onerous and may mean that the tenant is obliged to carry work whether or not there is any actual disrepair.

Legal action, negotiation and damages

Once the lease has ended, if the repair covenants have been breached, damages are the only available remedy for the landlord. The amount recoverable is governed by common law principles and section 18(1) of the Landlord and Tenant act 1927, which limits the amount recoverable for disrepair known as “the statutory cap”.

Common law measure: the reasonable cost of putting the property into the state is ought to have been left as per the lease terms.

The statutory cap: damages cannot exceed the loss in property value caused by the disrepair and no damages shall be recovered if the building is going to be pulled down or altered in a way that would render the repairs valueless.

Example:

Tips for tenants:

• Obtain a Section 18 valuation to ensure you don’t pay more than would be awarded if the landlord made a claim for dilapidations. 

Tips for landlords:

• If you want the tenant to carry out the work, deal with the disrepair during the lease term. You may be able to claim for equitable relief such as an injunction requiring the tenant to carry out the repairs. This may avoid the problems associated with the diminution of value limits on the cost of repairs at the expiry of the lease.
• Get legal advice well in advance before the end of the lease as you may need to serve the tenant with a notice prior to expiry about reinstating alterations or making repairs.
• Obtain good evidence and legal advice about how your intentions for the property after the expiry of the lease could impact dilapidations.