Items of disrepair caused by a tenant in breach of their lease are usually known as ‘dilapidations’. The term covers anything from failing to decorate, to remove alterations, or general disrepair. It is common for landlords and tenants to deal with the condition of the property when the lease ends. This is known as ‘Terminal Dilapidations’.
As a landlord, how do you ensure that your property is in the correct condition at the end of the lease? And, if it is not, how can you make sure you are compensated for any disrepair?
1. Schedule of dilapidations
First things first, you will usually need to instruct a surveyor towards the end of the lease term. The surveyor will inspect the property and prepare a ‘Schedule of Dilapidations’. This is a list of any alleged breaches of covenant by the tenant in relation to the condition of the property. It will also set out what works will need to be done to remedy the breach. In some cases, the Schedule will also estimate the cost of those proposed works.
As a landlord, it is sometimes appropriate to serve a Schedule of Dilapidations on the tenant before the end of the lease. This gives the tenant time to carry out the works themselves.
Your intentions for the property after the end of the lease will affect what you can ask the tenant to repair / claim for. For example, if you intend to alter the entirety of the property, the tenant will not be expected to decorate before the lease ends.
2. The Dilapidations Protocol
If the dilapidations become disputed, you will be expected to have complied with the Dilapidations Protocol. This set out guidance for landlords and tenants dealing with the early stages of a terminal dilapidations dispute.
Failure to comply with the Protocol could lead to the court ordering costs sanctions against you. It is therefore important that you follow it from the outset. As a result, it is worth seeking advice from a solicitor at an early stage to make sure that you comply with all the stages at the right time.
3. Service of the Schedule of Dilapidations and Quantified Demand
Once your surveyor has prepared the Schedule of Dilapidations, it will be served on the tenant. It is usually best to instruct a solicitor to deal with service. This is because the lease may set out specific methods for service. Further the Dilapidations Protocol sets out timescales for serving the Schedule.
When the lease has ended, the landlord (or solicitor) must serve a Quantified Demand on the tenant. This is a fully itemised list of the losses claimed by the landlord. It will form the basis of your dilapidations claim. The Dilapidations Protocol suggests that the Schedule of Dilapidations and the Quantified Demand should be served within 56 days of the end of the lease.
4. The tenant responds
The tenant will probably instruct their own surveyor to inspect the property and prepare a response to your Schedule of Dilapidations. The tenant’s response will set out the items on which they agree with the landlord, and those where they disagree.
Again, the Protocol sets out timescales in which the tenant should respond.
5. Negotiations
The Protocol encourages landlords and tenants to meet to negotiate on the dilapidations throughout. In particular, it recommends that they meet before the tenant serves their response, and then within 28 days after they serve the response.
Parties can often settle terminal dilapidations claims at this stage, and if not, they should be able to narrow any issues still in dispute.
6. Quantification of Loss
Before issuing proceedings, the landlord should serve on the tenant a Quantification of Loss. This is a detailed breakdown of the outstanding issues and the losses that the landlord claims. In some cases, the landlord will also provide a formal diminution valuation within this document.
7. Alternative Dispute Resolution (ADR)
It is not always possible to settle all of the issues and there may remain items of disrepair that the tenant disputes. If the parties have not been able to settle the matter, issuing proceedings at court should be a last resort. The Dilapidations Protocol encourages parties to consider other methods of dispute resolution such as mediation. Your lease may also require that you use ADR in the first instance.
Even if the dilapidations claim does end up going to court, there is nothing to stop the parties attempting settlement before the final hearing.
Our commercial property disputes team has experience in acting for both landlords and tenants in terminal dilapidations and disrepair claims. For a free initial discussion, call us on 0800 988 7756 or fill in the enquiry form.
