Building & Project Consultancy

Tenant’s Guide to Dilapidations

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What to do if you are a tenant?

As a tenant, it is vital that all lease covenants are evaluated and understood prior to the beginning of the Lease term. Appropriate advice should be sought at a pre-lease stage to minimise any financial implications at the end of term.

 

It would be beneficial for a tenant to have a Condition Survey carried out at the beginning of the lease so they can understand any risks ahead of time, and a dilapidations liability assessment ahead of the end of the lease term so that any budgeting can be easily managed.

Schedules of Dilapidations

  • Interim Schedules & Repair Notices: These are schedules generally served mid-term of the lease and are used to deal with serious breaches likely to cause diminution of a property or for a threat to Health & Safety regulations. In Leases of 7 years or more where there are at least 3 years remaining, the tenant may have a defence against forfeiture proceedings.

  • Terminal Schedules: These are schedules served usually in the last 12 months of a Lease.

Tenant's Defence/ Supersession

Tenants must be careful before signing their lease so that they understand their obligations for the repair and maintenance of the property upon vacating the premises. Subtleties in the Lease clause wording can significantly affect a tenant’s liabilities, so they should start thinking about dilapidations when they first begin looking at a property and are discussing any terms with their prospective Landlord.

 

A Schedule of Condition can be useful to help limit liability under a Lease. Knowing a property’s condition from the very start will help to avoid signing a lease that states it’s in good condition, when it isn’t.

 

A tenant’s liability for dilapidations is limited by Section 18 of the Landlord and Tenant Act 1927. It means that if a landlord were to make a claim, there are limits on what they can recover from the tenant if they decide not to carry out works to remedy dilapidations. There are two aspects of the Act that have the potential to what the Tenant owes:

 

  1. If the landlord intends to alter the property at the end of the tenancy or shortly thereafter meaning the repairs could be considered valueless, or if the property is to be demolished, this means no repair costs can be recovered by the landlord from the tenant.
  2. By calculating the difference by which the value of the landlord’s interest has been reduced on account of any breaches noted. A diminution valuation is undertaken to determine this cap.

Leasehold Property (Repairs) Act 1938

  • Dilapidations claims can become costly, especially in today’s economic climate. Claims for damages can include not only disrepair costs but also loss of rent, VAT and third-party professional fees for example Building Surveyors and Solicitors as well as other experts.

  • The Leasehold Property (Repairs) Act 1938 significantly limits a landlord’s ability to claim damages or forfeiture for disrepair during a tenancy. It applies where a landlord wishes to forfeit a lease in respect of a breach of covenant, to repair a property, held for a term of not less than 7 years, of which 3 years or more remain unexpired at the date of service of a notice of dilapidations under Section 146 of the Leasehold Property Act.

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Neil O’Brien

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Steven Whittle

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