A dilapidations claim can in some instances be ‘nil’! But there are ways to avoid this…

The practical definition of dilapidations is the “exit costs” to the tenant of putting a property back into repair and potentially reinstating tenant’s alterations at the termination of a tenancy / lease.  These dilapidations costs are usually an unexpected outgoing for an uninformed/unadvised tenant who receives a schedule of dilapidations from its landlord.

Dilapidations are an area of growing dispute between landlords and tenants as the lifespan of leases becomes shorter.  Allsop is one of the UK’s leading dilapidations specialists, advising on the valuation and legal dilapidations issues that influence the level of dilapidations claims at lease / tenancy expiry.

Navigating a dilapidations claim goes much further than the schedule of dilapidations.  It is the skill of the dilapidations negotiator that ensures success.  We are experienced dilapidations negotiators in this field:

  • providing initial dilapidations estimates
  • arranging a schedule / survey of dilapidations
  • interpreting the lease in relation to dilapidations – using caselaw precedent to strengthen and underpin our arguments
  • if appropriate arranging for dilapidation works to be undertaken
  • advising on the implications of dilapidations legislation including section 18 of the Landlord & Tenant Act 1927 – the hardest hitting statutory provision in the Act for landlords – imposing caps on a landlord’s claim
  • advising on tactics / timings to employ in given circumstances
  • negotiating the dilapidations claim
  • advising on the Dilapidations Protocol – i.e. best practice guidance for landlords
  • preparing Section 18 valuations

Dilapidations FAQs

Is there a difference between Dilapidations and Reinstatement?

Yes – dilapidations works are repair works to the property which have not been undertaken by the tenant in contravention to the repairing clause in the lease.  These can be limited by section 18 of the Landlord & Tenant Act 1927.

Reinstatement works are those that may be required by the lease, reinstating tenant’s alterations.  These are not limited by section 18 of the Landlord & Tenant Act 1927 and it is important for the landlord to be fully conversant with the lease provisions relating to dilapidations, to properly understand any notice requirements to be served on the tenant prior to the end of the lease.

When do I prepare for Dilapidations?

For a landlord it is important to be prepared.

It is worth seeking advice 12 months before expiry – but beware; your future intentions for the property will influence the value of your claim. You will need, therefore, to factor this in to your dilapidations planning

It is also important to prepare early to avoid falling foul of the servicing of time-critical notices, that may be obligated on the landlord.

Is Dilapidations Always Payable?

No.  In certain instances a dilapidations claim can be limited by section 18 of the Landlord & Tenant Act 1927 to the lower of :

  1. the cost of undertaking the dilapidation repair works and
  2. the diminution of the landlord’s reversion due to the dilapidation works having not been undertaken.

A section 18 valuation mitigates the claim in favour of the tenant. This is why it is important to have a dilapidations negotiator that has both the valuation and the property market expertise to navigate through the process if initiated by your tenant.

What is the Dilapidations Protocol?

Guidance to parties that the courts strongly encourage parties to follow during a dilapidations dispute to limit the costs and time incurred.

Case Study: Enhancing the performance of the client's asset.

Gracechurch Street, London EC3

Dilapidations

Acting for the landlord on a City core office building of 15,000 sqft on a single floor, refurbished in 2007.

Expiry of a 10 year lease with full tenant dilapidations obligations

Prospect of repurposing / recycling tenants fittings

The floor was fitted out by the tenant to a good quality finish in 2013.

 

What we did

Assess the options for the client:

  1. Landlord refurbish floor – expensive. Our City agency team’s view was that this may enhance value, but the cost benefit was not clear
  2. Tenant reinstate floor – ie tenant complies with obligations and executes the work. But end product not likely to suit general requirements in the market, so risk of long void letting period and any value in the tenant’s fit out is removed.
  3. Tenant pays the landlord the reinstatement cost and fit out remains in situ – least risk carried by the landlord here, so clients preferred option

Negotiations with the tenant’s advisor over several months involved full blown reinstatement discussions including contentious ceiling replacement issues and a case for the base build luminaires (light boxes no longer in stock) to be replaced.

We negotiated a costed scope of works for full reinstatement, to include replacement of lights to new LED’s

At this stage we engineered the option of a cash settlement; ie the tenant was encouraged to relinquish carrying out the works on payment of the costed sum. (Advantage – freeing up the landlord’s position to initiate le-letting plans for the space without unwanted interference from the tenant, or compromise to the dilapidations outcome).

The Outcome

  • Cost of the scoped works agreed at £20.50 per sq ft.
  • Substantial cash settlement received by the landlord.
  • Terms agreed by agency team within three months for a reletting of the floor “as is” (with cash contribution for new LED’s).
  • Leaving a surplus of funds for client of in excess of £250,000, for our client to reinveste elsewhere in the building.
  • And meeting the clients ‘green credentials’ – ie recycling the tenants fittings, so no unnecessary strip out.

Meet the Dilapidations Specialist team

Richard Bourchier

Partner

Lease Advisory &
Business Rates

MRICS MCIArb

James Acock

Partner

Lease Advisory &
Business Rates

MRICS

John Banbury

Partner

Lease Advisory &
Business Rates