Landlord and tenant solicitor, Emma Slade, looks at dilapidations at the end of a commercial lease.
A written commercial lease sets out the agreement between a landlord and the tenant, and the obligations of each party under it. Specifically, it will set out the obligations of the tenant as to repairing covenants (keeping the premises in good or reasonable repair), decorating requirements, or even reinstatement. Importantly, it will also specify how the property is to be presented once the lease has expired and is returned to the landlord. And the Landlord will be checking that the property is in the correct condition – and that all the covenants have been met. Meet ‘terminal dilapidations’.
During a lease, if the landlord considers that the tenant is in breach of its repairing obligations, the landlord can serve what is known as a “s146 Notice” which sets out details of the breach and method of remedy. If the tenant fails to comply, then the landlord can seek to forfeit (terminate) the lease without any reimbursement of the premium the tenant paid to obtain the lease.
At the end of the lease, an inspection will be carried out to determine whether the tenant has been complying with the repair and maintenance obligations. This is usually done by instructing a surveyor who will prepare a formal report, identifying the defects and the cost to the landlord of putting it right, as well as the loss of rent for the period that the property remains vacant whilst the works are undertaken. The cost of repair cannot exceed the diminution in value to the premises.
The report itself does need to be in a specific format and any surveyor familiar with dealing with “dilaps claims”, will know the relevant legislation to refer to and how to draft such a report. Specifically, it is set out in the “Pre-Action Protocol for Claims for Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy”. Bit of a mouthful but fortunately known as the ‘Dilapidations Protocol’.
Once the report has been prepared, a formal letter or “Quantified Demand” needs to be sent to the former leaseholder, setting out specific information and setting out the recompense the landlord requires. This can be done by the landlord or their surveyor but more usually it is done by a solicitor.
The whole purpose of the ‘Dilapidations Protocol’ is to set out a specific timetable for the dilaps claim to be dealt with, both expeditiously and fairly between the parties and, as much as possible, to avoid litigation.
The Dilapidations Protocol is intended to be user friendly so parties can understand the procedure but reality is, it can be quite daunting especially given there are consequences if the timetable is not kept to.