Dilapidations

Question 1

Define the term ‘dilapidations’

Answer 1

‘The term ‘dilapidations’ refers to a state of disrepair in a property where there is a legal liability for the condition of disrepair’

Those items of disrepair that arise through breach
of contract, especially by one of the parties to a lease, giving rise to a right to damages or remedial action

Question 2

What are the 3 factors for dilapidations?

Answer 2

• A lease (usually a commercial lease of 25 years or less but may be a longer term);
• A piece of property or part of an estate (e.g. offices, a
warehouse, or a unit in a shopping centre)
• A state of disrepair for which one party has accepted legal liability and for which the other party has suffered or will suffer financial loss’

Question 3

Why does a dialpidations claim benefit the owner of the property?

Answer 3

If a building is not properly maintained, it can become damaged or fail, with the effect that the value and usefulness of the building might be diminished, either to its owner or to those occupying it

Question 4

What is in both of the parties interests in terms of responsibility for the leased property?

Answer 4

• When a building is let, the landlord and tenant will be keen to ensure that one or both of them take on the responsibility to maintain the property.
• identifying what the landlord or tenant may or may not do to the premises is decided upon in the lease

Question 5

What is a dilapidations claim?

Answer 5

A dilapidations claim is an assessment of whether these provisions have been complied with and the implications of this

If a building has been damaged, and assuming that action is required, then the first task will be to seek to determine what the breaches are, generally by recording them in a Schedule of Dilapidations

Question 6

How does the length of the lease affect the remedial actions?

Answer 6

• The remedies that are available will be influenced principally by the length of the term of the lease that is remaining
• However, when these remedies are to be imposed on the other side, especially where this takes the form of financial compensation, the actual losses that these breaches cause need to be taken into account

Question 7

What two factors must be considered when covering the dilapidation task?

Answer 7

• The extent of the breaches of the lease, together with the works necessary to correct them
• The actual effect that these have on the other’s interest

Question 8

What does fitting out mean?

Answer 8

Works required by a tenant to make the premises fit

and ready for occupation and use

Question 9

What does forfeiture mean?

Answer 9

The ability of the Landlord to bring the Lease to an
end during the Term as a result of the Tenant not having paid rent, not having complied with covenants or becoming insolvent

Question 10

What is a full repairing lease?

Answer 10

A full repair and insuring lease means that a tenant is responsible for all maintenance (internal and external) as well as the buildings insurance. Also known as FRI
or full repair

Question 11

What is an internal repair only lease?

Answer 11

An internal repair only lease means that a tenant is responsible for internal maintenance only. The Landlord is likely to be responsible for external maintenance

Question 12

What is a licence?

Answer 12

A document by which the Landlord gives consent

usually to alterations to the premises or the assignments or underlettings

Question 13

What is a rent review?

Answer 13

The basis on which the rent can be increased

during the Term. Rent Reviews often take place every 3 or 5 years. The Lease will set out how the rent is to be reviewed

Question 14

What is a service charge?

Answer 14

The amount that the Tenant has to pay to
the Landlord for maintaining and repairing common parts of the property or building such as repairing structural parts with an Internal Repairing Only Lease or areas of a building or estate that are used in common with other Tenants

Question 15

What is an assignment?

Answer 15

The transfer of the Tenant’s interest in the Lease to
another person (the Assignee)

Question 16

What is a break clause?

Answer 16

A clause within a lease allowing the landlord or

tenant (or both) to terminate the lease upon serving Notice as defined in the lease

Question 17

What are covenants?

Answer 17

The obligations that the Landlord and the Tenant
must comply with. These are set out within the Lease itself. The Tenants Covenants are one of the main parts of the Lease

Question 18

What is demise?

Answer 18

The area that is let to the Tenant under the terms

of the Lease

Question 19

What is a term?

Answer 19

The length of time that the Lease is granted to the Tenant for

Question 20

What is underletting?

Answer 20

The granting of an additional Lease by a Tenant to a third party to another person (the Under tenant) of all
or part of the premises with the existing lease staying in place

Question 21

What does yielding-up mean?

Answer 21

At the end of a lease, a tenant is required to Yield Up in accordance with the repairing and redecorating covenants contained within the lease A tenant is also required to remove any alterations which they may have been carried out, including the removal of demountable partitions, for which an express licence is usually not required

Question 22

What can a landlord include in a dilapidations claim?

Answer 22

• The cost of repairing the demised premises
• Decorations
• Reinstatement
• Professional Fees

Question 23

What are repairs in the dilapidations claim?

Answer 23

• This may include putting the premises into repair that meets the standards found at the beginning of the lease
• The obligations may be ‘limited’ by a Schedule of Condition recording the standards required

Question 24

What are decorations in the dilapidations claim?

Answer 24

• As standard, most leases require that the premises be decorated internally every five years and externally every three years
• There will usually be a clause requiring that the entire premises be decorated in the last year of occupation

Question 25

What does reinstatement mean in the dilapidations claim?

Answer 25

• It is usual for the tenant to be required to reinstate the premises to the configuration/layout in which the premises were originally found
• For example, this is likely to include the stripping out of any partitioning or plant, or mezzanine floors etc

Question 26

What do professional fees include in the dilapidations claim?

Answer 26

• For Contract Administration – The fees for preparing the specifications, obtaining tenders and administrating works on site
• For Professional Fees for preparation of the Dilapidations Schedule.
• Fees may include specialist testing

Question 27

What does a loss of rent mean in the dilapidations claim?

Answer 27

• The market rent for the period it would take to undertake the works plus possibly then period for preparing specifications and obtaining tenders

Question 28

What does loss of service charge mean in the dilapidations claim?

Answer 28

• Applicable where the building is in multiple occupancy

Question 29

What does VAT mean in the dilapidations claim?

Answer 29

VAT is recoverable either where the Landlord has already done the work and paid VAT or where there is a real possibility that he will do so in the future, and he is in either case not able to reclaim the VAT as input tax.

Three questions must be asked:
a. is the Landlord VAT registered?

b. has the Landlord elected to charge VAT on the rent for the premises?
c. does the Landlord intend to carry out the works?

Question 30

What is the strategy for the landlord in the dilapidations process?

Answer 30

The landlord wants the highest possible damages whilst the tenant wants to minimise his costs

Question 31

What is the strategy for the landlord in the tenants process?

Answer 31

• Tenants should seek the advice of a professional well in advance of the lease expiry in order that the dilapidations liability can be assessed and a strategy established
• The adviser can then work on behalf of the tenant to negotiate an acceptable settlement with the landlord or to project manage any required works

Question 32

What can over-exaggeration or understatement of dialpidations schedules lead to?

Answer 32

The Civil Procedure Rules have resulted in a vast reduction in this approach as the courts can now impose damages on any party who is found to
be ‘obstructing’ the process, which eventually ends up coming before the courts.

This is particularly important as any subsequent litigation carries with it the danger of a heavy costs order against the party who exaggerates or understates its position

‘In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including the conduct of all the parties’

Question 33

What can the tenant do if the landlord sends an interim schedule?

Answer 33

The tenant can seek relief under the Leasehold
Property (Repairs) Act 1938 (as amended by the Landlord and Tenant Act 1954), if the lease has more than three years to run (and the lease term is over seven years)

Question 34

What are conditions for the tenant not to do the interim schedule?

Answer 34

The lease has to have more than three years to run
(and the lease term is over seven years)

This will normally be successful provided that the repairs are not required to put the building in repair under a specific lease covenant or to avoid substantial damage to the value of the revers

Question 35

In respect of a terminal schedule, what options does the tenant have for a number of options when the end of the lease approaches?

Answer 35

• The tenant can attempt to comply with all his repairing obligations either by his own interpretation of the lease or by reference to the landlord’s schedule
• The tenant can do nothing, wait until the lease expires and then seek to negotiate a financial settlement
• He can carry out limited works and seek to negotiate a settlement in respect of the work he is not undertaking

Question 36

How does the The Leasehold Property (Repairs) Act 1938 affect the landlord and tenant?

Answer 36

• Where a tenant claims relief under the 1938 Act, the tenant within 28 days of service of the section 146 notice, serves a counter-notice taking the benefit of the Act
• The landlord may not proceed with a damages claim (or forfeiture) without first obtaining the permission of the court

Question 37

What are five grounds under the 1938 Act which the court can make the tenant fulfil the interim schedule?

Answer 37

When the immediate remedying of the breach in question is required to prevent substantial diminution in the value of the landlord’s reversion, or that the value thereof has been substantially diminished by the breach

When the immediate remedying of the breach is required for the purposes of any enactment, by-law or other provision having effect under an enactment, or for any order of a court or requirement of
any authority

In a case in which the tenant is not in occupation of the whole of the property with regard to which the covenant or agreement is proposed to be enforced, and where the immediate remedying of the breach is required in the interests of the occupier of the property or of part thereof

When the breach can be immediately remedied at an expense that is relatively small in comparison with the much greater expense that would probably be occasioned by postponement of the necessary work

In special circumstances which, in the opinion of the court, render it just and equitable that permission should be given

Question 38

Why might the tenant not be required to pay the full or no reinstatement?

Answer 38

• If the tenant has discharged all his liabilities then the matter should be concluded swiftly, however this option is not always viable, as the premises are usually required by the tenant until immediately prior to the lease expiry
• It is also possible that the landlord may have plans for the building which would over-ride the requirements to carry out some works (ie substantial refurbishment)
• The landlord may have a new tenant wishing to retain some of the facilities for which there is a requirement for reinstatement
• There is also the danger that the works carried out by the tenants may not be of a satisfactory standard resulting in a full claim from the landlord in any event

Question 39

What are the principles of the damages regarding the dilapidations claim?

Answer 39

• A landlord cannot recover more than its loss.
section 18(1) of the Landlord and Tenant Act 1927, a landlord cannot recover more than the diminution in the value of its reversion

• The purpose of damages is to compensate an injured party for its loss; it is not to punish. That is the position regardless of the nature of the breach(s)

Determining the cost of the works will be a matter either for expert evidence or, where the works have subsequently been carried out, to be ascertained by reference to the actual cost of the work done. The questions to be asked are:

a. what were the works the Tenant should have done in order to perform its obligations;
b. what is the reasonable and proper cost of those works.

There may be more than one way of carrying out the work. For these purposes the measure of damages will be governed by reference to the method of work that the tenant would have chosen – usually the less expensive method: Ultraworth Limited v General Accident Fire & Life Assurance Co Limited [2000] 2 EGLR 115. Of course, if the lesser method does not amount to full performance of the covenant this will not apply.

Question 40

What is the purpose of damages in the dilapidations claim?

Answer 40

The purpose of damages is to compensate an injured party for its loss; it is not to punish. That is the position regardless of the nature of the breach/s

Question 41

Define and explain the Tenant and Law Act 1927

Answer 41

• The common law position is that, where there has been a breach of the repair covenant, the normal measure of damages is the cost of repair

Question 42

What two calculations are required to calculate the diminution of the property?

Answer 42

• In order to calculate the diminution two valuations are required. Firstly to compare the property’s value in poor repair; and secondly to look at the value the property would have achieved in the open market if it had been maintained by the tenant

• The second valuation is a hypothetical assessment, as the premises would not currently be in repair. It must consider all potential uses for the premises, as it may be more valuable as a redevelopment site or for an
alternative purpose

Question 43

What is the first part to section 18(1)

Answer 43

• The first limits the claim to the amount that the value of the landlord’s
reversion is diminished by breaches of the covenant to repair
• The landlord cannot recover more than it has cost, in terms of the
loss caused to the value of the property. This is the diminution in the
property’s reversionary value, caused by the disrepair

Question 44

What is the second part to section 18(1)

Answer 44

• The second part states that no damages are recoverable, if it can be shown that on expiration of the lease the premises would be demolished or altered to the extent that would render valueless the repairs in
question

Question 45

What is the role of the Building Surveyor?

Answer 45

• The role of the Building Surveyor will differ significantly depending on whether acting on behalf on a Landlord or a Tenant

Question 46

What is the difference when the building surveyor is appointed by the landlord instead of the tenant?

Answer 46

• When acting on behalf of a landlord, the Building Surveyor will prepare a schedule of dilapidations. When negotiating on behalf of a Landlord the Building Surveyor will aim to maximise that amount of damages payable

• When acting on behalf of a tenant the Building Surveyor will receive and scrutinise a schedule prepared by the landlord’s professional advisor.
When acting on behalf of a tenant the Building Surveyor will be trying to minimise the amount of damages payable

Question 47

What should the Building Surveyor’s role include the following to ensure that the tenant minimises financial liability:

Answer 47

Assess the repairing, decoration, alteration
and yield up covenants within the lease and
any other supporting documentation

Advise tenant as to whether it is best to undertake certain works prior to the expiration of the lease in order to reduce/remove the dilapidation liability or to seek to negotiate a financial settlement with the landlord

Prepare a report assessing the dilapidations liability, which will provide a realistic breakdown of the potential claim in relation to building works, loss of rent, service charge and insurance

When project managing works, ensure that the scheduled works and costs do not exceed the specific liabilities and will not be superseded by essential works
required to market the premises

Be persistent in negotiating a settlement in order to minimise the client’s uncertainty over liabilities or the potential monies available to undertake repairs

Question 48

What does the CPR include regarding the conduct of all parties?

Answer 48

Conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol

Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue

The manner in which a party has pursued or defended his case or a particular allegation or issue; and

Whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.’

Question 49

What does the CPR include regarding the conduct of all parties?

Answer 49

Conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol

Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue

The manner in which a party has pursued or defended his case or a particular allegation or issue; and

Whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.’

Question 50

What are the issues with seeking a claim for damages during the term?

Answer 50

a. the application of the Leasehold Property (Repairs) Act 1938,
b. the fact that damages during the term are limited at common law to the diminution in the value of the reversion (which may be hard to prove): Crewe Services and Investment Corporation v Silk [1998] 2 EGLR 1, and
c. such a claim does not have the effect of getting the work done.

Forfeiture or carrying out the works pursuant to a so-called “Jervis v Harris” clause is likely to be more useful.

Question 51

What is the amount of damages recoverable governed by?

Answer 51

a. the application of the common law principles for the assessment of damages for breach of a covenant to repair;
b. subject to the application of section 18(1) which limits, and in some cases extinguishes, the amount otherwise recoverable.

Question 52

What is the measure of damages at common law?

Answer 52

The ordinary measure of damages at common law for breach of a covenant to leave the property in repair at the end of a lease is the cost of putting the property in the state in which it ought to have been left, giving appropriate credit for betterment, plus any foreseeable consequential loss, most usually loss of rent: Joyner v Weeks [1891] 2 QB 31.

Question 53

If the landlord is registered for VAT waives exemption to VAT on the premises, how does this apply to damages?

Answer 53

In this case, the LL can recover any VAT inputs in full on work carried out to the premises. Therefore he will not be able to recover VAT as part of his damages because it is not ultimately a loss borne by him.

Question 54

If the Landlord is registered for VAT but he has elected not to charge VAT on the premises in question, or is altogether unregistered for VAT, how does this apply to damages?

Answer 54

The LL will be unable to reclaim some or all of the VAT paid by him on work to the premises. Such amount of the VAT paid by him that he cannot reclaim is a loss recoverable as part of his damages.

Question 55

What costs and fees are recoverable as damages?

Answer 55

12. The cost of the works recoverable as damages will include any professional fees and costs reasonably incurred in:
    a. obtaining advice on the extent of the works, carrying out any necessary testing and exploratory procedures;
    b. preparing specifications for the works; and
    c. supervising the works.

Question 56

What fees and costs are not recoverable as damages?

Answer 56

a. the costs of ascertaining whether and if so to what extent the Tenant has breached the obligation to repair: these are costs incurred in determining whether there is a breach and not in consequence of it. It will be important to distinguish carefully between these costs and any incurred in ascertaining the extent of the necessary works under 12 a. above.
b. The costs of compiling and serving a Schedule of Dilapidations and complying with the Protocol: such costs are not treated as caused by the breach but the fetter placed upon the Landlord’s right to claim imposed by the legislature.

These are recoverable through other means (e.g. an express covenant in the lease).

Question 57

If there is an express covenant obliging the tenant to pay costs incurred in contemplation of proceedings under s146 of the Law of Property Act, what costs are actually recoverable when pursuing damages?

Answer 57

The common provision which obliges a Tenant to pay sums incurred by a landlord in contemplation of proceedings under s146 of the Law of Property Act is of limited assistance in this context. It will not cover costs incurred in preparing to bring an action for damages as opposed to forfeiture, though it will probably enable recovery of the cost of a Schedule of Dilapidations served with a section 146 notice. And any attempt to obtain the benefit of such a covenant by serving the Schedule with a section 146 notice close to the expiry of the term is unlikely to be effective – the covenant will be construed as applying only to bona fide attempts to pursue forfeiture.

Question 58

What are the implications of Proudfoot v Hart (1890) 25 QBD 42 on LL claiming damages?

Answer 58

‘“Good tenantable repair” is such repair as having regard to the age, character and locality of the [property] as would make [it] reasonably fit for the occupation of a reasonably minded tenant of the class who would be likely to take [it] … [the property] need not be put into the same condition as when the tenant took [it], [it] need not be put in perfect repair.’

’ … to keep a house in good tenantable repair the tenants’ obligation is to put and keep the premises in such repair as having regard to the age, character and locality of the house, would make it reasonably fit for the occupation of a tenant of the class who would be likely to take it. The age of the house must be taken into account, because nobody could reasonably expect that a house 200 years’ old should be in the same condition of repair as a house lately built.’

Also, it was held that an obligation to keep the premises in good ‘tenantable’ repair meant that the tenant should ensure that the property is delivered up in a good state of repair at the end of the tenancy, regardless of whether it was in that state from the onset of the lease.

Question 59

What was decided in Welsh v Greenwich LBC [2000] 49 EG 118?

Answer 59

the reference to ‘good condition’ in the repairing obligation marked a separate and unrestricted addition to the concept of ‘repair’. On the facts, it was held that damage caused to goods, not the structure, of the building in question was enough to have breached the obligation to keep the building in good condition.

Question 60

What types of obligation for decoration are there?

Answer 60

The obligation to redecorate exists, even if the premises are in an excellent ‘condition’. This point leads to there being two types of obligations to decorate. The first type of obligation will come within the scope of a repairing covenant. The second type of covenant is simply to redecorate at the time specified in the lease (irrespective of disrepair).

Question 61

What relief can tenants seek to avoid having to comply the decoration clause?

Answer 61

Section 147 of the Law of Property Act can relieve a tenant of performance of a decorating covenant if the landlord’s requirement is unreasonable.

S.147 provides that a tenant may apply to the court for relief from liability to comply with a decorative covenant if the landlord has served a notice on the tenant requiring him to comply with that covenant.

The court shall have regard to all the circumstances of the cases, including the length of the lease and the remaining term under the lease. The court may, if satisfied that the notice is unreasonable, order wholly or partially that the tenant be released from liability to decorate.

Question 62

What was the decision in Post Office v Aquarius Properties Ltd 1987?

Answer 62

Tenants liability for inherent defects

The tenant covenanted to keep premises in good and substantial repair. As a result of an original construction defect, when the water table rose, the basement became flooded. The water table subsequently fell leaving the basement once again dry and, apart from letting in water, no other damage was caused to the building. The defect had not grown worse but was in the same condition as it was when the building was first built.

The court held that the tenant’s obligation only arose when the property was in a state of disrepair. As the defect had existed since construction of the building and there had been no worsening or deterioration of the condition of the premises, no want of repair existed and therefore no liability arose on the part of the tenant.

The water table in the area in which the property was situated had risen after its construction. As a result of a defective ‘kicker’ joint between the walls and the floor in the basement, it became ankle deep in water. However, the joint was in exactly the same condition it had been in when the property was built. Moreover, there was no evidence that any part of the property to which the repairing covenant applied had become defective or fallen out of repair. Therefore, the court held that there was no disrepair:

‘A state of disrepair … connotes a deterioration from some previous physical condition.’

Question 63

What are the implications of the Jervis v Harris case?

Answer 63

The case settled previous uncertainty as to whether a landlord could recover the cost of repairing property the tenant had failed, after notice, to repair.

Where a landlord is entitled to serve a schedule of wants of repair on the tenant and enter the property and carry out the works in default of the tenant doing so, the debt that is then claimed in respect of the cost of the works undertaken by the landlord does not have to be pursued in a manner that complies with the Leasehold Property (Repairs) Act 1938.

Question 64

What is a Jervis v Harris Clause?

Answer 64

A Lease which contains a properly drafted Jervis v Harris clause, grants the Landlord a right to first serve notice on a Tenant, specifying any breaches of covenants relating to the condition of a property.

If the Tenant then fails to proceed diligently with remedying the breaches and/or to remedy the breaches identified in the notice within a specified period, (as set out in the Jervis v Harris clause – usually within 2-3 months), the clause grants a right for the Landlord to enter the property to carry out the works and to then recover the costs in doing so from the tenant, as a ‘debt’.

Question 65

What are the advantages of a Jervis v Harris Clause?

Answer 65

One of the key advantages of using a Jervis v Harris clause is it is likely to result in the necessary works being carried out. Especially if the Tenant is properly informed and seeks professional advice, meaning the property does not fall into further dis-repair during the remainder of the term and which can result in more costly and difficult repairs being needed in the future.

Furthermore, the Landlord is able to recover their reasonable costs incurred in undertaking the works from the Tenant as a ‘debt’, rather than as a damages claim. Consequently, the costs incurred are not subject to Section 18 (1) of Landlord and Tenant Act 1927, which limits any damages claim due to a Tenants failure to maintain and repair a property in accordance with their contractual obligations, to the adverse effect on the properties freehold value.

Therefore, all a Landlord will need to prove is they have acted reasonably, undertaken the works, incurred costs in doing so and are entitled to recover the costs in doing so as a ‘debt’ rather ‘damages’. Meaning they are then entitled to recover the actual costs incurred as a simple debt due by the tenant, which is far more straightforward to pursue compared to a damages claim.

Question 66

What should a Landlord consider when pursuing a repairs using a Jervis v Harris clause?

Answer 66

Where a Lease contains a Jervis v Harris clause, it is important that the notices are correctly served, that the alleged breaches correctly reflect the standard of repair required under the Lease and that timings are strictly complied with. The consequences of an invalid notice and where the Landlord then seeks to enter a property may constitute a breach of the Tenants right to quite enjoyment and could expose the Landlord to a possible counter-claim for trespass and business interruption.

It is therefore essential the correct contractual procedures are followed.

Question 67

Explain your understanding of Pullman Foods v Welsh Ministers (2020) or Capitol Park Leeds v Global Radio Services (2020).

Answer 67

Pullman Foods v Welsh Ministers (2020) - Buildings with ACM not removed by Pullman - Court found word ‘condition’ in the lease meant obligation to undertake works which go beyond that of repair. ACM to be removed. N.B. Word condition does not provide ‘unlimited jurisdiction’.

The court held that BFS (Parent company) was liable for the full costs of the remediation to the site and Pullman was liable for damages for the breach of the yield up covenant.

It was noted that even if the ACM had been present before the grant of the lease, this would not affect the required standard to comply with the yield up covenant. This demonstrates the need for tenants to consider the risk of previous contamination and other environmental concerns before entering into a lease.

Question 68

Explain your understanding of Capitol Park Leeds v Global Radio Services (2020).

Answer 68

The lease gave the tenant the right to determine it if, amongst other things, it “gave vacant possession of the Premises to the Landlord on the relevant Tenant’s Break Date”. “The Premises” was a defined term, including the original building on the property and landlord’s fixtures, whenever fixed.

The tenant started dilapidations work and in that context stripped out significant elements of the base build and landlord’s fixtures including radiators, lighting and ceiling tiles and grids. It stopped work in the hope of negotiating a settlement and surrender with the landlord, but was unable to do so. It did not replace the elements of the building which it had removed, leaving it, in the Judge’s words, “an empty shell of a building which was dysfunctional and unoccupiable”.

The Judge, Deputy High Court Judge Benjamin Nolan QC, however, held that the tenant had not complied with the break condition. What it had delivered up on the break date was not “the Premises”, as that term was defined in the Lease. He also held that the tenant had not established, on the facts, that the landlord was estopped from relying on the failure to comply with the break condition.

Permission to appeal to the Court of Appeal has been granted.