DILAPIDATIONS
(THE STATE OR PROCESS OF FALLING INTO DECAY OR BEING IN DISREPAIR)
Dilapidations is a specific area of law relating to breaches of a tenant’s lease obligations or covenants. A dilapidations claim can be made by the landlord against the tenant during or towards the end of a lease, or after the lease has ended. The landlord’s claim document – usually called a Schedule of Dilapidations – will contain references to breaches of the tenant’s lease obligations, mainly relating to physical alterations and their reinstatement, redecoration, and repair.
Dilapidations are breaches of leases due to the condition of the property being leased, either during or at the end of the lease period. This may result from mistreatment of the property or poor or absent maintenance or repairs that are required by the lease. Further work may also be required at the end of a lease to reinstate alterations that have been made to the property by the tenant.
Managing dilapidations is a complex and specialist area within the commercial property sector. Dilapidations arise due to a tenant’s failure to comply with obligations concerning the state and condition of the premises. The formal contract between a landlord and tenant, known as a lease, outlines obligations and covenants that both parties enter into to ensure that the property is maintained to the standard agreed in the contract.
Dilapidations are items of disrepair or defects. Tenants are usually obligated to rectify or pay to have items of disrepair/ defects remedied under repairing covenants contained in their lease prior to an exit, break or natural ending of a lease. This area is of particular importance during the COVID-19 pandemic as many properties lie empty and may be vulnerable to dilapidations.
Tenants should be clear about their responsibility for dilapidations and reinstatement when signing a lease or carrying out alterations and should budget and account for any necessary works during the course of the lease. If they fail to do this they face the prospect of unexpected, or unaffordable work, or having insufficient time to carry out the work before the end of the lease.
Landlords can serve a schedule of dilapidations on the tenant during (interim schedule of dilapidations), towards the end, or after (terminal and final schedule of dilapidations) the lease has expired. If the intention is to sell or re-let the premises, the earlier the schedule of dilapidations is served, the greater the chance that the tenant will undertake the work enabling the landlord to re-let sooner. In addition, the landlord can wait until the end of the term to serve a schedule of dilapidations to negotiate a financial settlement.
The main issues that arise from dilapidations involve certain breaches of tenants’ covenants relating to the state of repair of premises demised by a commercial lease. There is a particular focus on damages claims for breaches of a tenant’s repairing, redecorating, reinstatement, and statutory covenants. In addition to the repairing covenants above, covenants to ‘yield up’ can be onerous on tenants and include returning the property to its original state and condition before lease commencement. This means that before tenants vacate the property, they have to undo all the alterations they have undertaken and restore the property to the condition at the beginning of the lease.
It is advisable to prepare a schedule of conditions and a fair and factual assessment of the property’s condition at the beginning of the lease. This can then be used as a benchmark in any dispute in the future concerning any disrepair to the property.
The landlord or their surveyor will generally prepare a schedule of dilapidations. A schedule of dilapidations contains references to the breaches of the tenant’s lease obligations. These typically include outstanding reinstatement, repair, redecorating, reinstatement, and any statutory obligations with suggested remedial works and, in some cases, the estimated cost of these works and any loss of rent if the lease has expired. The schedule of dilapidations will allow for the basis of the landlord’s claim for compensation. A dilapidated claim is an allegation of breach of contract and, as such, is actionable in law.
If the required works are not carried out, the landlord may issue a schedule of dilapidations, or a notice to reinstate near the end of the lease (or an interim schedule during the course of the lease).
If dilapidated works are not carried out by the end of the lease, the landlord may claim damages from the tenant (a terminal dilapidated claim). This may take the form of a ‘quantified demand’ setting out details of the landlord’s losses as a result of the dilapidations, which may include loss of rent due to repairs being carried out. However, the landlord cannot profit from this claim, so if for example, the landlord does not intend to reinstate the property, this must be taken into account.
When the building demands heavy repairs, it is said to be in a dilapidated state. The term dilapidation is used to indicate the injuries to the Property on account of neglect by the owner and the term waste is used to indicate such injuries by tenants. The wastes are further divided into the following two types:
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Permissive waste
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Voluntary waste
The permissive waste indicates the essential repairs to a building and allows the building to pass into a state of disrepair. Voluntary waste indicates a wrongful action of a tenant for the beneficial enjoyment of the building such as the removal of partition will between adjacent rooms, providing a rolling shutter in the shop, etc. Voluntary waste may increase the value of the property.
In urban areas where Rent Control Act is prevailing the landlords are responsible for permissive waste and the tenants carry out voluntary waste only.
The landlords are not eager to spend for the permissive waste mainly because of the following acts.
- The tenants are paying very low rent.
- It is not possible for the landlords either to evict the tenants or increase the rent because of the Rent Control Act.
- There is an increase in population and it has more impact on the wear and tear of the property. For instance, the property occupied by 10 persons previously may now be accommodating 20 to 25 persons.
The valuation of works required, or the loss of value to the property can be complex calculations, and so both parties may wish to appoint valuers/surveyors to offer advice and prepare the appropriate documentation. Further specialist advice may be necessary for complex components or aspects of a property, such as a building services plant. Court proceedings may also involve expert witnesses.
Thus, the old buildings which are not getting the benefit of permissive waste are ultimately dragged into a dilapidated state and a time may come when they have to be rebuilt or they will all suddenly collapse.
The report for dilapidations should be carefully prepared by the valuer and it should contain a schedule of dilapidations floorwise together with the approximate cost brief description of each item and detailed measurements.
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