Property partner Matthew White gives his top tips for tenants to minimise dilapidations.
Tenants generally agree to maintain their property to a certain standard. At the end of their leases if they have failed to maintain their property they will almost certainly face a claim from their landlord for the cost of reinstating the property. This is commonly known as a claim for dilapidations.
Such a claim can be substantial and also often when made by more unscrupulous landlords, rather imaginative.
We set out here our top tips for tenants on how to minimise their liability for dilapidations.
Agree a favourable repairing and yielding up provision in your lease
Very basically your liability for dilapidations will depend both on what you agreed to do in your lease and the state of the property at the expiry of your lease.
If the property is in a poor state of repair and decoration when you take the lease you should not agree to keep it in good repair and condition. Such a term obliges the tenant to actually improve the property so it is in a good state of repair and condition. Instead if the property is in a poor repair the tenant should only agree to maintain the property in no worse state of repair than it is at the start of the lease.
Resist any obligations to reinstate alterations in your fit-out
If you are undertaking a substantial fit-out which improves the property agree with the landlord in the Heads of Terms that you will NOT have to reinstate the alterations at the end of the lease. If you do not agree this your lease and licence to alter will require you to remove your fit-out at the end of the lease. Even if you landlord is happy for your fit-out to remain he can use this obligation to reinstate as a means of extracting some payment from you in place of requiring you to remove your fit-out.
Maintain a Programme of Regular Repair and Maintenance
Obvious, but a regular maintenance programme will ensure that the property should not fall into serious disrepair with a consequent major dilapidations liability at the end of the lease. Remember also that landlords do have the right to serve what is known as an interim Schedule of Dilapidations during a lease. A regular maintenance programme reduces the risk.
Communicate with the Landlord
Well before the end of the lease speak to the landlord and ask for it to inspect and indicate to you what the dilapidations are. There is no point pretending you will not have a dilapidations liability and burying your head in the sand. The sooner you can create a dialogue with the landlord the better the chances of resolving the dilapidations amicably and sensibly.
Retain a Specialist Dilapidations Surveyor
If the landlord appears to be unreasonable or you suspect the dilapidations liability will be large you must retain a specialist dilapidations surveyor to help you fight your corner. It is not enough to reply on a good general surveyor, dilapidation is a complex area and the stakes are high. Make sure you use a specialist and check on his experience by getting a summary of the dilapidations work he has undertaken in the last year.
Obtain an estimate from your Contractor of the cost of carrying out the Works to Remedy the Dilapidations
￼In order to reach an agreement with the landlord as to your liability you must know how much it would cost to carry out the works yourself. You should contact a skilled fit out contractor and get a realistic estimate of the cost of the works. If the landlord refuses to agree a dilapidations settlement close to the cost of doing the works yourself it is very clear that you should carry out the works.
In order to assist you in reaching a settlement with the landlord it would be useful to provide your contractor’s estimate both as evidence as to the real cost of doing the works and also as evidence that you are actually prepared to carry out the works if no settlement can be reached.
Research if the Landlord has any settled intention to redevelop the Property
Section 18 (1) of the Landlord and Tenant Act 1927 limits damages for dilapidations to the diminution of the value of the reversion caused by the disrepair. Furthermore the landlord cannot recover any money for dilapidations if it can be shown that the property will be demolished or substantially redeveloped shortly after the end of the lease. Accordingly it is important you research the landlord’s intentions for the property. If you can show the landlord will be redeveloping you will not have to pay any money for dilapidations at all. Examples of proof of a landlord’s intention to redevelop include planning applications for redevelopment etc. This evidence will be very persuasive in showing any court that the landlord is intending to redevelop.
Ensure the Dilapidations Issue is resolved before the Expiry of your Lease
The worse case scenario is that the dilapidations are not resolved before your lease expires. In such a case you will be liable to the landlord not just for the cost of the landlord undertaking the works (and remember you will have no control over the landlord’s contractors and their charges) but also for mesne rent during the period the works are undertaken (when the landlord cannot let the property).