The 7 Steps of a Terminal Dilapidations Claim
19 November 2021
- Check the Lease
Check the lease in plenty of time before it is due to end to see what this says about the tenant’s obligations regarding repair, reinstatement, redecoration and giving the property back to you.
You should also check through your records for a copy of any licence to alter, deed of variation and schedule of condition that you may have granted during the term. If you did, it is important that you check these documents so that you can be certain of the extent of the tenant’s obligations in relation to dilapidations.
The wording of the repair clause is important because this dictates the extent of the tenant’s obligation. If there is a term which says “full repairing lease” then it means that the tenant has full responsibility for the repair of the whole property which may include the structure, exterior and common parts.
- Inspect the Property
Both you and your surveyor are going to need access to the property before the end of the term. This is so that you can assess the condition of the property and the extent of any dilapidations.
Check the terms of the lease as this will state what your rights of entry are and how you must exercise the rights. It is likely that you will be obliged to provide your tenant with notice of your intention to inspect.
- Timing is everything
Once the existing lease has ended, your priority will be the ability to re-let it as soon as possible. Therefore, you will need to give some thought to the issue of dilapidations in plenty of time before the lease ends. Otherwise, there may be a delay in re-letting the property whilst you are still dealing with the dilapidations.
Here are some things you need to consider:
- Does the lease state when you must serve a schedule of dilapidations on the tenant? If there is a deadline, it is crucial you comply with it otherwise your rights may be lost.
- Be mindful of the Pre-Action Protocol for Claims for Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy (“the Protocol”). The Protocol stipulates that a landlord must serve the schedule of dilapidations on the tenant within a reasonable time. This is not more than 56 days after the lease has ended.
- The lease may have a clause which allows you to require the tenant to reinstate any alterations or remove their fixtures only if you have served a notice requiring the tenant to do this by a certain date. Therefore, note any deadlines regarding notice and ensure that the notices and prepared and served on the tenant in sufficient time.
- Check if there is a clause in the lease which stipulates that you may only recover the costs you have incurred in connection with the preparation and service of a schedule of dilapidations if you serve it by a certain date.
- If you do not want to do the repair work yourself but your tenant does, then the tenant will need enough time to complete them before the lease ends. Otherwise, they will not be authorised to enter the property. If this happens, then it may be necessary to grant the tenant a licence.
- Prepare the Schedule and Quantified Demand
Once you or your surveyor has inspected the property, your surveyor should put together the schedule of dilapidations (“Schedule”) together with a quantified demand (“QD”)
The Schedule should set out each breach of the tenant’s covenants in the lease by reference to the actual covenant in the lease which has been breached, how it has been breached and what work is going to be required to remedy the breach.
The Schedule must be costed in detail, and it must be in prescribed form. The prescribed form is contained at Annex B or C to the Protocol.
If you intend to prepare the Schedule yourself, then you should prepare the schedule using the prescribed form at Annex C. If you have instructed a surveyor, then they should use Annex C.
Once the Schedule has been prepared, it should be scrutinised thoroughly to make sure that it contains the correct information and to be certain that the tenant is in breach of the clauses that have been referenced.
The QD must set out all aspects of your claim and support the damages that you are claiming in the Schedule. If your claim is based on the costs of the repair works, then each item must be supported with a detailed estimate.
The figures in the QD must be restricted to your likely loss. This may not be the same of the costs of works to remedy the breaches.
The QD must comply with the requirements of the Protocol it should not include any items of works which are going to be superseded by something else that you intend to do with the property.
- Serve the Schedule and the Quantified Demand
Once you are satisfied that the Schedule and the QD is accurate, it should be finalised, and a copy served on the tenant.
The lease may contain a provision which relates to how documents are to be served. Make sure you comply with this provision and serve the schedule and the quantified demand by the method stated in the lease and by the timescales specified.
In addition to what the lease states about service, you should also serve a copy of the Schedule and QD electronically. The Protocol says that you should do this wherever possible so that the tenant can respond and provide their comments using the one document. The purpose of this is to make it easier for both parties.
If there is a guarantor of the lease, then a copy of the Schedule and QD should also be served on that party at the same time you send it out to the tenant.
- The Tenant’s Response
The tenant should respond to the Schedule and the QD within a reasonable timeframe. This is usually within 56 days of you serving the Schedule and QD.
Where possible the tenant should respond to the claim using the Schedule and QD that you have provided. The tenant’s response should provide enough detail so that you can understand what the tenant’s views are in relation to each item claimed.
The tenant’s response must comply with the requirements of the Protocol
Within 28 days of the tenant serving their response to the Schedule and QD upon you, it is advisable for you and the tenant (or your respective surveyors) to meet on a without prejudice basis to try and resolve the claim.
- Working out the loss
If it is not possible to reach an agreement with the tenant regarding your claim for dilapidations, then you will require the assistance of the court to resolve the matter by issuing proceedings.
However, before you take the step of issuing your claim at court, you will be obliged to quantify your loss and provide a breakdown of that to the tenant. This is a requirement of the Protocol.
Your loss will be based on a formal diminution valuation prepared by a surveyor or information relating to your actual expenditure.
The process of valuing diminution involves a comparison of the value of the property in the state of the repair as stipulated by the lease and the value of the property in its actual state. The date of the valuation is the date that the lease ends.
It is important that you obtain evidence of any diminution in value if you do not intend to do any of the works to the property yourself. In the absence of a diminution valuation, there is a risk that the court will reduce any final award it may grant to you. Some of the cases that have been decided by the court suggest that the reduction to a landlord’s claim may be severe where there is no expert evidence presented regarding diminution valuation.
If you need help with your dilapidations claim then do contact our dispute resolution expert, Kelly Ellery.
