November Update – Dilapidations In Light of COVID-19

The current coronavirus pandemic and continuous government restrictions have resulted in a widespread ‘work from home’ approach, limiting the need for office space and bringing an end to many commercial property leases.

Unfortunately, some commercial tenants have no option but to end their lease and vacate their premises as their business ceases trading.

The end of commercial leases has resulted in a rise of dilapidation claims. Dilapidations generally refer to disrepair to the premises relating to the tenant’s repairing obligations in the lease. These claims are often brought by the landlord against the tenant at the end of a lease. In light of the pandemic and the changes it has brought, landlords are increasingly bringing dilapidation claims and tenants are understandably concerned about their liability in relation to the amount of damages.

Whether you are a landlord or a tenant, the first course of action would be to double check the tenant’s repairing obligations under the lease. The landlord will need to ensure that any disrepair relates to these obligations. The tenant should double check their obligations and ensure they have complied with these. It would be beneficial for the tenant to check the lease terms prior to the end of the lease to ensure they have sufficient time to adhere to their covenants.

If the landlord brings a claim for dilapidations, the landlord will need to calculate the damages, which will involve instructing a surveyor to prepare a schedule to serve on the tenant. If the lease is still continuing at this time, it is important for the landlord to review the terms of the lease in relation to accessing the premises to ensure they do not breach their covenants and the tenant’s continuing right to quiet enjoyment.

The amount of damages the tenant is liable for in relation to the breach of their repair obligations will be limited under section 18 (1) of the Landlord and Tenant Act 1927. Damages are limited to take into account diminution in value and supersession.

• Diminution in value relates to the amount by which the value of the landlord’s remaining interest is reduced by the breach. This considers the difference in the value of the premises when comparing the value of the premises in the condition required by the lease and the value of the premises in its actual condition. The amount of damages claimed cannot exceed the loss in the value of the property.
• Supersession refers to the concept that damages should not be recovered for any improvement works or alterations a landlord intends to undertake, which would render the tenant’s repair work valueless. The tenant is responsible for proving that the landlord’s intention to undertake any work which amounts to an improvement and which goes beyond what the tenant is obliged to do would make the tenant’s repairs valueless and as such, no loss is suffered by those disrepairs.

Whether you are the commercial landlord or the commercial tenant, it is strongly advised that you obtain specialist legal advice in relation to dilapidations before the landlord brings a claim or before the tenant terminates the lease. In the current climate, the importance of doing so is amplified.

If you are a commercial landlord looking to bring a dilapidations claim or a commercial tenant who is concerned about their liability in relation to dilapidations, please contact Katie Briggs, Associate Solicitor in the Property Litigation Team at The Wilkes Partnership on 0121 233 4333.