Dilapidations in Commercial PropertyAt the end of a commercial tenancy, many tenants are expected to reinstate the property to the condition it was leased to them in. If the property is not in the same condition, any alterations are referred to as ‘dilapidations’ (or ‘dilaps’ for short). Reinstatement is a costly business and dilapidations claims are on the increase with money being tight.
Dilapidations are breaches of lease covenants that relate to the condition of a property during the term of the tenancy or when the lease ends. If the property has any ‘dilapidations’, the tenant should correct these or pay for these to be corrected.
The pre-Court process for parties to follow is set out in The Dilapidations Protocol .
This Protocol took 10 years to draft and helps landlords and tenants negotiate the dilapidations at the end of the lease term.
The Protocol encourages the Landlord and Tenant to exchange information about the property sooner rather than later and maximise opportunities for settlement before litigation gets involved.
The main steps for negotiating dilapidations are:
- When coming to the end of the lease, the Tenant should be aware of the extent of the Dilapidations work they have committed to complete. Review the Lease and take advice!
- Early assessment of the property and timing is essential for Landlords. A notice to reinstate alterations should be sent to the Tenant before the end of the lease term. Prepare or instruct someone to do this in good time!
- It is good practice for a Landlord to instruct a surveyor to review the property before the end of the lease and create a Schedule of Dilapidations (with a Quantified Demand from the Landlord for the costs of reinstating the alterations) to serve on the Tenant. This must be issued within 56 days after the end of the lease term. Don’t fall foul of deadlines!
In litigation, The Dilapidations Protocol is now expected to be followed before filing proceedings.
If the dilapidations are not rectified by the tenant and the tenant does not pay the Quantified Demand, then The Dilapidations Protocol states that the parties in such a case should consider alternative dispute resolution (ADR) before going through the courts. ADR does not involve the courts and is considerably cheaper than litigation through the courts. Forms of ADR include expert determination, mediation and arbitration, all of which are suitable for claims relating to dilapidations.
This gives a flavour, but there is far more to get your head around within the Protocol and associated caselaw. Dilapidations claims, just like any other claims that proceed to Court, require preparation. That preparation includes compliance with the Pre-action Protocol. Failures to comply can impact your ability to proceed and can result in costs sanctions being made against you.
To ensure that does not happen, you should ensure that you get appropriate legal advice at an early stage, and preferably before commencing the Protocol Procedure.
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