Dilapidations – The State of Repair
Disputes between landlords and tenants over who is liable for the cost of repair and maintenance to commercial properties, so called dilapidations claims, arise frequently.
The cost of repairs to business premises can be vast, yet this is a liability which is often given surprisingly little consideration at the start of a lease when the parties’ attention is quite often focussed on getting a tenant into an empty unit or, from the tenant’s perspective, in the hurry to start trading from new premises.
The majority of commercial leases make the tenant liable for some form of repairing commitment during, but particularly in practice, towards the end of the term.
The precise repair, decoration and alteration provisions will be set out in the lease and will vary from property to property. Once the lease has been signed, the provisions for repair and maintenance form a binding commitment which often sees tenants liable to a far greater obligation than they ever expected. An issue which arises regularly is where a tenant takes a lease of premises which are in poor repair at the start of the lease. Many tenants assume that their obligations are limited to leaving the property in the same condition in which they found it, but frequently this is not the case. A covenant to “keep a property in repair”, for instance, imposes an obligation to put the property into repair even if it is in poor repair at the start of the lease. What can look, at first glance, like fairly innocuous repairing covenants can impose huge financial consequences on a business if careful attention is not paid at the negotiation stages. Whether you are a landlord or a tenant, understanding these obligations and carefully examining and recording the condition of a property at the start of the lease can pay dividends later.
Even if you have already entered into a lease there are steps that can be taken to improve your position, whether you are a landlord or a tenant. As a landlord, it can be worth arranging an inspection of a building whilst the lease is on going and then serving the tenant with a notice to repair. If the repairs aren’t carried out a landlord can often carry them out, billing the tenant for the cost of the works. From the tenant’s perspective, when faced with a schedule of dilapidations at the end of the lease, there can be scope for significant reduction in the liability for repairs by arguing that your liability should be limited to the amount by which the premises are devalued by any defects, as this can be significantly less than the cost of undertaking the repair work.
We recommend that both landlords and tenants take advice on repairing covenants and dilapidations claims to ensure that practical steps are taken to resolve any potentially costly dispute.