Dilapidations

The term dilapidations refers to a property’s state of disrepair where there is a legal liability for the condition of disrepair. This legal liability usually arises from express covenants contained within a lease. However, it may be a consequence of the law of tort or an implied contract.

Landlords and Tenants frequently begin leases without considering the condition of the property at the beginning of the tenancy. If these precautions aren’t taken, there are no plans to maintain the building in accordance with the tenants repairing covenants during the period of occupation.
The Landlord and Tenant may renew the original tenancy without necessarily considering the condition of the property. This means the landlord could overlook the implications of any improvements or alterations, which might have been undertaken.

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Therefore, it is only when this landlord/tenant relationship ends that attention will focus on any dilapidation issues with the building. Unless the parties to the lease have had the foresight to consider a dilapidations procedure well before the end of the tenancy, this is very often the starting point for a dilapidations dispute.

A schedule of dilapidations records the works required to be done to a property, so it equals the state of the property when the tenant took up residency. This should have been put in if the tenant had complied with its covenants or obligations contained within the lease of the property.

When a tenant yields up the property, they simply return it to the landlord at the end of the lease and have removed all fixtures and fittings. This clause is key to outlining what is required of the tenant before they yield their tenancy of the property.

There are two types which can be served at different times during and after the tenancy:

An interim schedule: This is served during the term of the tenancy; it is issued if the landlord is concerned that the tenant has not carried out proper maintenance on the property. This is to remind the tenant of their obligations and to clarify what is expected before the situation escalates. This protects both the landlord and the tenant from paying higher repair costs later.
A terminal schedule: This is usually served within the last 18 months to three years of the lease at or shortly after its end. It goes into greater detail, listing items of disrepair that need to be fixed before the end of the tenancy. However, the tenant will not be entitled to undertake this work themselves after their right of occupation has ended.

A landlord should follow a procedure, the schedule must also specify:

The Royal Institution of Chartered Surveyors issues guidance on Dilapidations and gives practical advice to surveyors. This entails how to prepare, serve and respond to dilapidations claims, both before and after the commencement of proceedings.

Dilapidations are unique to the UK and are enforceable in a court of law. Clearly, a landlord will interpret disrepair in an entirely different way to a tenant and the legal interpretation of lease clauses can vary from case to case.

The state of the property market is key to the approach and outcome of a dilapidations claim. It also depends upon whether the demand for such property space is strong or not.

In weak market conditions:

In strong market conditions:

This provides a statutory cap for damages, by calculating the value of a landlord’s loss on account of the breaches of lease covenant. It is otherwise known as the ‘diminution in value’ of the landlord’s interest.

The Dilapidations Protocol was formally adopted by the Court Rules on 1st January 2012 and is now Law in England & Wales. The aim of the Protocol is to ensure that a claim is reasonable and understandable, in hope of reaching a settlement before court proceedings are issued. Where litigation cannot be avoided, then the Protocol facilitates the efficient management of the process.

The Pre-action Protocol: This is produced by the Property Litigation Association (PLA) in consultation with the Royal Institution of Chartered Surveyors (RICS). It should be used at the expiry of the lease term in all damage caused by breaches of a tenant’s repairing obligations.

The Courts: The Protocol is now treated as the normal and reasonable approach to pre-action conduct by the courts. Non-compliance might bring sanctions against the party concerned, so it is essential that surveyors, landlords and tenants understand the implications of dilapidations fully before making a claim.