Brady Solicitors take a look at the law around terminal dilapidations and outline how both landlords and commercial tenants can take steps to protect themselves.
At the end of a commercial tenancy, a landlord is able to serve on the departing tenant a schedule of dilapidations in relation to the property’s current state. This schedule will state what needs to happen for the repair covenant to be complied with.
If the maintenance of the building has been neglected or the building has fallen into disrepair, the landlord can then make a claim for the cost of the necessary works.
However, any claim by the landlord will be limited to the diminution in value of the property as per Section 18(i) of the Landlord and Tenant Act 1927, which states that a landlord can only make a claim for the drop in the value of the property caused by the tenant not carrying out his repair duties as specified in the repair covenant.
If a landlord, whether mistakenly or intentionally, carries out repairs not included in the repair covenant, and then attempts to claim for these repairs, it is likely for the claim to be disputed.
Here’s an example:
The surveyor values a property at £200,000 in its current state. She says that, had the tenant carried out the repairs as per the obligations in their lease, the property would be worth £210,000. This gives a Landlord’s Loss of £10,000.
In the meantime, the landlord replaces various items in the property and completes some repair work that comes to a total of £25,000.
He puts in a dilapidations claim to the tenant for the full amount but can only recover £10,000.
Our advice to landlords
Understand the repair covenants in your leases and what they cover.
You can only recover costs for work that the departing tenant should have done pursuant to the repair covenant. For example, if the covenant says the tenant must repair and you then replace, you will not be able to claim for the full cost. It is also important landlords take commercial advice on whether any claim is going to be limited under Section 18(i) of the Landlord and Tenant Act.
Our advice to commercial tenants
Go into tenancy agreements with your eyes open!
Get your lease reviewed, ensure you understand what you are signing up to in terms of obligations and repair covenants – do you need to repair or replace for example? We also recommend you make sure you have a schedule of condition.
Specialist dilapidations help
For practical, effective legal support at either the lease review or dilapidations claim stage of a commercial tenancy talk to the specialists at Brady Solicitors. Call us on 0115 985 3450 or drop us an email. We can ensure you understand what you’re signing up to and can help you to resolve any difficult dilapidations problems that may arise.