When a commercial tenant vacates its premises on the expiry of a lease, even if the lease has been relatively short, there is often a very substantial claim by the landlord to recover damages for dilapidations. Both parties can find themselves locked into an expensive and possibly very long dispute unless they take effective and appropriate action to resolve the dispute, or even better still, avoid the dispute arising in the first place.
Avoiding the dispute
Both landlord and tenant can avoid a costly dispute at the end of the lease by having taken appropriate advice before the lease is entered into as regards what repairing obligations are most appropriate for them. The focus for the tenant will usually be on avoiding unusually onerous obligations, for example, to put back into repair an already dilapidated building, particularly if the proposed lease is a very short one. The focus for the landlord will be to avoid obligations which are ambiguous or unclear, because that will create problems with enforcement.
Both parties can sensibly try to avoid a dispute before the term has expired by agreeing well in advance of the tenant’s departure precisely what state the landlord expects the building to be in when he takes possession. This might include the tenant taking clear and timely advice regarding what fixtures he must remove and what repairs he must carry out.
Commencing a dilapidations claim
If the landlord and tenant do not agree on what works must be done before the end of the term and the landlord finds the premises out of repair when he takes possession, the first thing he will need to do is prepare a report on the condition of the property. If there is likely to be a lot of work required or if the works are likely to be costly, then it is usual for the landlord to appoint a surveyor to prepare a detailed schedule of dilapidations for service on the tenant. The tenant must respond to the schedule and if Court proceedings are likely to follow, both parties must have regard to the detailed Court protocol when exchanging their positions on the dispute.
The tenant will very rarely be able to show that his liability is nil. If he has any liability for damages then the lease will often require him to pay the landlords costs. He might be able to avoid liability for the landlord’s costs by making a suitable offer of settlement at an early stage. Therefore, it is very important for the tenant to consider as soon as possible the appropriate level at which to pitch any offer and it is important for the landlord to know whether it would be prudent to accept an offer or make a counter offer, because if the Court finds the damages the tenant has to pay are less than the offer, then the landlord might have to pay some or all of the tenant’s legal costs.
Each case is unique and the tenant’s liability will depend upon the wording of his particular lease, the character and state of repair of the premises and the manner in which the claim is put by the landlord. However, there are some common responses to a landlord’s claim which might have a significant impact on the claim, particularly when the tenant believes that the claim has been inflated by the landlord. Some common responses are:
- Generally the landlord is entitled to the cost of repair and not the cost of improvements.
- The landlord’s claim is always limited to the difference in the value of the landlord’s holding with or without repairs and that might be nil, for example, if the landlord proposes to demolish and redevelop the premises, but note it is not dependent on him in actually intending to carry out the repair works.
- If the landlord has himself failed to repair a part of the building for which he is responsible (for example roof or external walls), then a tenant may be able to claim that any internal damage was caused by the landlord’s own breach of covenant even though responsibility for internal repairs falls under the tenant’s own covenants.
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