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 frequently a shock to the 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 and advises both landlords and tenants upon 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
- 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
- advising tenants whether to carry out the works within the dilapidations schedule
- advising either landlord or tenant as to the tactics / timings to employ
- negotiating the dilapidations claim
- advising on the Dilapidations Protocol
- preparing Section 18 valuations which can have the effect of significantly reducing a tenant’s dilapidations liability.
Is there a difference between Dilapidations and Reinstatement?
Yes – dilapidations 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 to properly understand the provisions of the lease to determine whether the landlord is required to serve notice on the tenant prior to the end of the lease.
When do I prepare for Dilapidations?
Either as a landlord or tenant it is important to be prepared.
As tenant, for tax and balance sheet purposes it may be necessary to seek an estimate of potential dilapidations liability three to four years before the end of the lease. We are happy to provide this estimate at no cost. Otherwise, seek advice six months before the end of the lease. It may be cheaper to plan to undertake the dilapidation works than pay a settlement figure to the landlord.
As, landlord also seek advice at least six months before the end of the lease to ensure the service of important, time critical, notices is not missed.
Is Dilapidations Always Payable?
No. The dilapidations liability can be limited by section 18 of the Landlord & Tenant Act 1927 to the lower of :
- the cost of undertaking the dilapidation repair works and
- the diminution of the landlord’s reversion due to the dilapidation works having not been undertaken.
A section 18 valuation will often limit the dilapidations claim and this is why it is important to have a dilapidations negotiator that has the valuation / property market expertise.
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.
239 – 241 Shaftesbury Avenue, London WC2
The case involved a Victorian office building of approximately 2,500 sq ft.
The tenant, Rhinegold Publishing Ltd, received a dilapidations schedule from the landlord with a dilapidations claim of £180,000. Rhinegold originally instructed a building surveyor from another firm to negotiate the dilapidations. The building surveyor negotiated the claim down to £90,000 and recommended settlement at this level. At this point Allsop was approached to provide a second opinion.
We were instructed by Rhinegold and insisted on a section 18 valuation. Over several months we negotiated the dilapidations claim down to £22,000. We saved the client a further £68,000 or 75% on the settlement recommended by the building surveyor highlighting that the skill of the dilapidations negotiator is critical to success.