Dilapidations disputes arise when the tenant and the landlord disagree about what condition the property should be left in at the end of a lease.
Much depends on the terms of the lease and, in some cases, the quality of the evidence of the initial condition.
The parties to a dilapidations dispute must follow the Pre-Action Protocol for Claims in Relation to Damages for the Physical State of Commercial Property at Termination of a Tenancy.
Paragraph 3.3 of the Dilapidations Protocol states that the Schedule of Dilapidations should be sent within 56 days of the termination of the tenancy. Therefore, early advice from an experienced solicitor and/or surveyor is essential to a satisfactory resolution. Tenants need to be aware of the effect of section 18(1) of The Landlord & Tenant Act 1927 which may have the effect of substantially reducing the amount they are obliged to pay a landlord.
When a commercial lease expires and the tenant has not complied with its repairing obligations under the lease, the landlord may be able to issue a claim for terminal dilapidations as a result of the tenant’s breach.
The ‘Pre-Action Protocol’ or ‘Claims to Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy’ (“the Protocol”) applies to these claims and sets out conduct the court would expect the parties to follow prior to the commencement of any proceedings, together with setting out a timetable and process to facilitate the exchange of information.
Irrespective of whether the landlord or tenant seek professional advice, it is essential that the Protocol is fully complied with. The aims of the Protocol are:
- To facilitate and encourage the early and full exchange of information
- To enable the parties to avoid litigation by way of negotiation prior to proceedings being issued
- Where litigation cannot be avoided, to support the efficient management of proceedings.
As the Protocol is a Pre-Action Protocol under the Civil Procedure Rules, substantial compliance is required before a claim can be issued. For the purposes of compliance, the court will be concerned that the parties have “complied in substance” with the relevant principles and requirements and will impose sanctions (for example, a costs order) where non-compliance has occurred. It would therefore be good practice to evidence compliance where possible.
Schedule of dilapidations
To begin the process, the landlord should send to the tenant a Schedule of Dilapidations which should set out what are considered to be breaches, the works the tenant is required to complete to remedy the breaches, and the likely costs involved (if relevant).
The Protocol states that the Schedule should be served within a “reasonable” amount of time and suggests a timeframe of 56 days after the lease terminates. It is good practice for the Schedule to comply with the Protocol and, where possible, should be sent electronically to allow the tenant to respond within the same document.