Where tenant fails to uphold lease provisions relating to the repair and condition of a premises, resulting in financial loss to the landlord, this is known as dilapidations. Such provisions are common practice in commercial leases, and will entitle the landlord to carry out measures to stem their financial loss as a result of a tenant’s refusal to comply with their statutory obligations.
Procedure for dilapidations
Where a landlord conducts a survey of the premises and finds it to be in disrepair, they will have a Schedule of Dilapidations procured and presented to the tenant. The Schedule records all items for which the tenant is in breach of the repair provisions of the lease agreement, and will usually provide an estimation of costs. By subsequently issuing a Repairs Notice, the landlord initiates formal proceedings to have the requested repairs carried out.
The tenant will have two options: either (1) conduct the repairs before the end of the lease term; or (2) agree a financial settlement upon expiry of the term. If the tenant resorts to financial settlement, the parties must convene and agree within a reasonable time, which in accordance with the Pre-Action Protocol issued by the Property Litigation Association is around 56 days following issuance of the Schedule of Dilapidations.
A landlord will often include repairs as a prerequisite condition for the exercise of a Break Notice. As a result, if necessary repairs are not made, the tenant will not be able to prematurely terminate the lease to their financial advantage by engaging an agreed break clause.
If the tenant refuses to act upon the Schedule, or enter settlement, several remedies are available to the landlord, including forfeiture, a court order for specific performance or self-help through commencing repairs and then billing the tenant.
Covenants for repair appear in almost all leases, and breach of covenants for repair will entitle a landlord to serve a Section 146 Notice. This Notice affords the tenant a reasonable time to carry out repairs, and where the tenant fails to do so they may seek forfeiture of the lease. Forfeiture can be achieved by:
- Peaceable re-entry: where the landlord enters the premises and alters the locks, and in doing so provides notice of the effective date of termination of the lease to the tenant. In using this remedy, regard must be had for procedure. If a tenant is present on the premises or has left property there, seizure by a landlord may result in the tenant bringing a claim for damages.
- Forfeiture: a court order for the tenant to vacate the premises by a certain date.
With covenants for repair, a landlord cannot seek immediate forfeiture if there are more than three years remaining on a lease that is seven or more years in duration. In such cases, the landlord is required to provide 30 days’ notice before initiating proceedings, and inform the tenant of their right to counter-notice. If a tenant opts to lodge a counter notice, the landlord cannot use peaceable re-entry as a remedy.
A court is able to issue an order for specific performance upon a tenant to carry out repairs. Such remedies are grounded in equity, and a court will only enforce them against the tenant if it is considered fair and reasonable to do so.
A common provision in leases is known as a “Jervis v Harris” clause. Such clauses entitled the landlord to enter the premises and make necessary repairs themselves, if the tenant is non-compliant. The landlord will then bill the tenant for costs.
Self-help remedies are useful as they can avoid the need for bringing an action for forfeiture. However, the conditions of the clause must be strictly adhered to, otherwise a landlord can leave themselves vulnerable to a claim for trespass.
In order to minimise financial loss, for example if the tenant is unable to pay up for repairs at the end of the lease period, it is advisable for landlords to subject their property to ongoing inspection. If caught early, a tenant who has failed to meet their ongoing obligation for repair can be subject to a forfeiture action by the landlord. Through forfeiture, the landlord can recover possession of their property without having to wait for the lease to end.
It is also advisable to procure a Schedule of Condition at the outset of the lease. This will enable both parties to reach a common understanding of the condition of the premises and lessen the likelihood of disagreement on where repairs become necessary.
Limitations on claims
The amount a landlord is able to claim is regulated by statute, and measured by the actual diminished returns suffered. Under the Landlord and Tenant Act 1927, if a landlord is able to re-lease a premises for the same market value as the previous tenant, resulting in no loss, then they will not be entitled to claim any sums.
In addition, if the landlord anticipates making alterations to the premises that would render repairs the tenant is obliged to make obsolete, the landlord cannot claim they have suffered loss.
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In order to minimise financial loss and time-consuming litigation, it is highly advisable to consult a Property Litigation Solicitor at the outset of starting or renewing a lease in order to iron out a common understanding of obligations of repair and the consequences of failure to adhere to them. If a landlord must resort to self-help, considerable care must be had for proper procedure, or they may be left vulnerable to claims from a tenant and left in a worse off position.
At Lewis Nedas, our team of Property Lawyers have broad experience in both commercial and residential property litigation. We have successfully advised clients with highly complex and multi-faceted cases. To speak with one of our Property Lawyers, please contact us on 020 7387 2032 or complete our online enquiry form.