Dilapidations - The landlord's claim

Under the majority of leases for commercial properties the tenant covenants to return the property to the landlord in good repair. This may be a point not considered at the commencement of the lease.

Today, many tenants will take a lease subject to a Schedule of Condition which will limit the tenant’s liability to handing back the property in the condition in which it is originally taken. However, if there is no Schedule of Condition then it is usually implied that the tenant must hand back the property in good condition, no matter what the state of repair at commencement.

It is the tenant’s responsibility to repair and hand back the property at the end of the term. On occasions the tenant and landlord may enter into a dialogue to agree the works that are required, or the landlord may serve on the tenant a Schedule of Dilapidations outlining the works that the landlord believes are required.

However, what often happens is that the landlord and tenant do not enter into any discussions prior to the lease coming to an end and no Schedule is served upon the tenant. The tenant leaves the property in a state of some disrepair, leaving the landlord with the problem. It is at this stage that the landlord instructs a surveyor to prepare a Schedule of Dilapidations to serve on the tenant and make a claim for a financial settlement.

What can the landlord claim? The landlord can claim for their loss. This is usually regarded as the cost of putting the property back into repair. However, this is not always the case. The landlord’s loss may be lower than the cost of repairing the property.

Section 18 of the Landlord & Tenant Act sets to limit the measure of the landlord’s loss where the landlord proposes to demolish or redevelop the property. Professionals and commentators argue that this relates to repair only and does not extend to other matters such as redecoration or reinstatement of alterations. However, in reality, the common law limit on damages is the loss that is incurred and if the landlord proposes to demolish or substantially reconstruct the property then any redecoration, alteration or repair works carried out by the tenant would be undone and rendered valueless. In the circumstances the landlord cannot claim for such works as they are not suffering any loss.

Alternatively, the property may be of a type that any future tenant would fit out to their own style or requirements. The market for the property may have changed such that a new tenant would require a different configuration or accept a different standard. These could all impact upon the works that the landlord needs to carry out to re-let the property, and therefore their loss.

When a landlord serves a Schedule of Dilapidations at the end of the lease they are obliged to set out their intentions for the property. These intentions could have a significant impact upon the measure of any claim.