Dilapidation Issues | Cleaver Fulton Rankin

In an earlier article we mentioned the issue of dilapidations claims arising on termination of a lease. That was in the context of the exercising of a break clause.

On a more general point, perhaps we should consider what we mean when we refer to dilapidations. Claims for dilapidations are usually brought at the end of the lease term and relate primarily to items of disrepair/lack of decoration covered by tenant covenants in the lease (which the Landlord requires to be performed) and are as follows:-

• Covenant to repair;
• Covenant to reinstate alterations;
• Covenant to decorate;
• Covenant to comply with statutes.

The law relating to dilapidations has a long history, but there are some relatively new considerations and approaches which have been suggested in a relatively recent English High Court decision Blue Manchester Limited -v- North West Ground Rents Limited [2019] EWHC 142 (TCC).

In that decision, the Judge drew attention to certain matters perhaps for the first time and which had not been fully considered previously:-

• The look of the thing – it was confirmed that aesthetic considerations (i.e. how a property looks) may be relevant in assessing the standard of repair. It is important to recognise that the starting point is the state (and possibly nature) of the property as it existed at the time of the lease, so if the proposed repairs are likely to affect that, an alternative repair may be ordered. Obviously this will apply to certain properties more than others, due to specific features or characteristics.

As against that, there will no doubt be cases where it would be unreasonable for a landlord to insist on contractual obligations reflecting solely aesthetic consideration being performed;

• Part Disrepair – it is not necessary for the disrepair to be so serious as to make the property non-functional;
• Temporary Repair – a party cannot argue that the property is in repair because they have carried out a “temporary fix” that is currently working, so that the property is not “currently” in disrepair. There has to be a compelling reason for a party to have to accept a time-limited repair on a permanent basis;
• The Court has the final say – while specific performance of repairing covenants is relatively rare, a Court can order repairs to be carried out and if that is the case, you must ensure that this is done; otherwise you would risk being in contempt of court and would face the consequences of that.

There are certain practical steps that have to be fully considered by both landlord and tenant.

In the context of serving a break notice, a tenant should already be considering his dilapidations strategy and upon receipt of same, the landlord should also be giving consideration to this.

The parties also need to have a clear view as to what they are seeking to achieve, i.e. does the landlord want the works to be done or is a financial settlement likely to be reached between the parties. Be sure to take clear advices as regards the provisions in the lease which together form the basis for a dilapidations claim. It is essential to ascertain from the terms of the lease what precisely are the parties’ obligations and that should always be the starting point in any discussions.

As always preparedness is the key to a successful outcome.

If you are a landlord or tenant and need advice on your rights and obligations on termination of a lease, please get in touch with our Commercial Real Estate team – we can advise on which course of action to take and ensure that whatever processes have to be taken, are taken properly, to ensure the effectiveness of your approach.

This article has been produced for general information purposes and further advice should be sought from a professional adviser. Please contact our Commercial Real Estate team at Cleaver Fulton for further advice or information