09 Jan Dilapidations claims – property disputes
What are dilapidations? How can a landlord make a claim? What remedies are available and what are the considerations that need to be taken by both landlord and tenants?
Read our answers if you are a landlord and you need to bring a dilapidation claim or are tenants faced with defending a claim.
What are dilapidations?
Dilapidations are items of disrepair in a rented property that are covered by repairing covenants contained in a lease, and sometimes, in supplemental documents.
Tenants can be liable for dilapidations involving:
- Repairing covenants requiring the tenant to fix elements of the property.
- Decorating covenants which provide that the property should be decorated to a particular standard.
- Reinstatement requirements stating that the property needs to be reinstated at the end of the tenancy.
- Any statutory compliance.
When there is a dispute between the landlord and tenant regarding dilapidations, a landlord may begin a dilapidation claim.
Types of dilapidations
There are two different types of dilapidations:
- Terminal dilapidations
These cover breaches of tenant covenants when the lease ends or is nearing termination. A landlord will usually carry out an assessment at the end of the lease to produce a schedule of dilapidations, which is explained below.
- Interim dilapidations
These cover breaches made during the lifetime of the lease. Landlords will usually have more remedies available to them with these types of dilapidation claims.
Remedies
The remedies a landlord may be able to claim will depend on the terms of the lease and when the term expires.
Damages
A landlord can claim damages for dilapidations. This is the landlord’s only remedy once the lease has ended.
However, there are limits to the amount of damages a landlord can claim under s18(1) Landlord and Tenant Act 1927. This has two limbs:
- First limb: Damages are limited to the diminution in the landlord’s reversion which is caused by the breach of covenant. This is done by comparing the value of the premises in a state of repair against the value of the premises in its actual state; and
- Second limb: Damages are not recoverable where the tenant can show that after the termination of the tenancy, the property will be pulled down, or structural alterations made as would render valueless the repairs covered by the breach of covenant or agreement. This is subjective, meaning there must be a clear and informed intention to do this work.
Forfeiture
Forfeiture allows a landlord to bring a lease to a premature end. This can only be used as a remedy if the landlord has an express right to re-enter the property. This will permit an inspection of the property before taking further steps.
Before forfeiting a lease, the landlord needs to serve a s146 notice under the Law of Property Act 1925 (“LPA 1925”) on the tenant specifying the breach, requiring the tenant to remedy the breach, requiring the tenant to pay monetary compensation and containing a statement detailing the tenant’s right to serve a counter-notice. This gives the tenant a reasonable time to remedy the breaches before a landlord can forfeit.
A landlord can waive their rights to forfeit if they treat the lease as continuing to exist once they have knowledge of the dilapidation. For example, this could include accepting rent from the tenant.
There are statutory safeguards in place for tenants to protect them from forfeiture.
- S1 Leasehold Property (Repairs) Act 1938 provides that if there is a breach of covenant during the term of the lease and the notice is served 3 years or more before the term expires, the tenant may serve a counter notice within 28 days of service. If the tenant serves a counter-notice, the court’s permission must be obtained before the landlord can either bring a claim for damages or take steps to forfeit the lease for disrepair.
- S146(2) LPA 1925 provides that a tenant can apply to the court for relief when a landlord is enforcing their right of re-entry or forfeiture.
Self-help
Self-help is also known as a Jervis v Harris clause in the lease. This entitles the landlord to enter the property, carry out the works to repair the breach and recover the costs from the tenant. The costs which the landlord will seek to recover will be recoverable as a debt as opposed to damages. This is only an option to a landlord if they are given an express right of entry or the term of the lease has expired.
The benefit of this remedy means that the landlord can be sure that the work will get done. However, this will involve increased time and costs for the landlord with no guarantee that the full amount will be recovered.
Specific performance
The court can order a tenant to perform their obligations under the lease. This is rare as it is a discretionary remedy which is only available when there are no other remedies which are adequate.
Practical considerations
For a landlord
A landlord should have in mind some practical considerations when bringing a dilapidation claim.
Firstly, the market conditions may affect what action a landlord takes. If the market is strong, the landlord will be in a better position to negotiate with the tenant. However, this position will change if the market conditions are weaker. Additionally, consideration may need to be given as to how to deal with dilapidations following termination of the tenancy, as this may affect the landlord’s ability to market the property.
The parties may also be looking at renewing the lease under the Landlord and Tenant Act 1954. If a lease is renewed before the dilapidations are dealt with, there is risk that this will reduce the repairing obligations under the renewal lease and it is important to ensure the dilapidations claim under the previous lease is preserved. Perhaps with a commitment to undertake those works within say 18 months of the commencement of the renewal lease. A dilapidations claim may also mean that one of the parties may no longer want to renew the lease. Therefore, a landlord should bear this in mind before bringing a claim.
Landlords can also consider bringing a claim against another party. This includes:
- A guarantor who has become liable under the lease due to the tenant’s breaches.
- A former tenant who has given the landlord an authorised guarantee agreement (AGA).
- A undertenant with a direct covenant to the landlord.
For a tenant
A tenant’s main consideration would be whether they should carry out the work themselves. It is better for a tenant to do this if they do not dispute the breaches. If a tenant does decide to do the work, this should be done prior to the expiry of the term.
Dilapidations Protocol
The Pre-Action Protocol for Claims for Damages in Relation to Physical State of Commercial Property at Termination of a Tenancy (“Dilapidations Protocol”) provides a framework for landlords and tenants during a dilapidation dispute that is terminal. The aim of this is to ensure the claim is reasonable and understandable by encouraging settlement and imposing processes with time limits.
The following provides a brief overview:
- The landlord should instruct a surveyor to inspect the property and prepare a schedule of dilapidations at the termination of the tenancy. This will set out the grounds for bringing the claim, an estimate cost for carrying out the works and a quantified demand detailing the landlord’s claim for compensation. The tenant should respond in 56 days.
- Within 28 days of the response, the landlord and tenant should meet to try and resolve or narrow down the issues.
- After a failed attempt at alternative dispute resolution, the landlord must provide a more detailed quantification of their losses, including the diminution valuation and actual or expected costs.
- Any defences should be confirmed 56 days after the detailed quantification.
- The parties should then stock take (review their respective positions).
We would recommend looking at the Dilapidations Protocol to get a better understanding and more detailed explanations of the process of a dilapidation claim.
How we can help
If you are a landlord wanting to make a dilapidation claim or a tenant who wants advice in relation to dilapidations, our experienced litigation team will be able to help you navigate through this complex area of law.
Contact us for legal advice:
- Email info@hrjforemanlaws.co.uk
- Call Hitchin, 01462 457711, Welwyn Garden City, 01707 887700, Old Harlow 01279 709 100.
- Complete our contact form here