Dilapidations: dilapidations claims

In a distressed state

31 March 2010

Are dilapidations claims simply a game of cat and mouse or is there more to them than meets the eye? Jonathan Ross looks at their impact on landlords and tenants

Dilapidations claims are particularly prevalent at present due to the state of the property market. Many tenants are vacating premises, which they have occupied for some time and are in a state of considerable disrepair. Because of the lack of new tenants, and the competition from modern premises which are more attractive to potential tenants, landlords are not carrying out repairs to old properties. Instead, they wait to see if they need to upgrade them or they consider alternative uses or redevelopment - this makes claims even harder to establish and quantify and settle.

When a lease comes to an end, a tenant who is vacating can have a very substantial liability to the landlord for terminal dilapidations if it does not deliver up the premises in a good state of repair and/or re-instated to their former level. The longer the lease, the larger the liability is likely to be. A tenant who has sub-let will try to pass on to the sub-tenant its liability for dilapidations, so various parties can be involved.

The Commercial Lease Code 2007 proposes that tenants should not be required to return premises in any better state than when they took them but this is not at all popular with landlords as it can cause all sorts of difficulties in identifying what was the state of repair and what works of any value the tenant is actually required to undertake. It is simply impractical to require a tenant to put premises back into its original state of disrepair.

When deciding whether premises are in good repair or not, and the extent of repair required, regard is had to the age, condition and nature of the building at the time of the letting and the length of the lease. Premises should be left in a standard fit for occupation by a reasonably minded tenant of the class who would be likely to occupy the premises. A tenant is not normally liable to improve the premises although, sometimes, improvement is unavoidable when an item is beyond repair and has to be replaced or where the lease requires this.


At the end of a long lease, premises and their plant and machinery may be very out-dated. However, a tenant is not normally obliged to modernise the premises or replace the equipment unless it is beyond repair and/or it is necessary to do so in order to comply with statutory requirements or suchlike

At the end of a long lease, premises and their plant and machinery may be very outdated. However, a tenant is not normally obliged to modernise the premises or replace the equipment unless it is beyond economic repair and/or it is necessary to do so in order to comply with statutory requirements or suchlike. Many of the reported dilapidations cases relate to claims by landlords for the costs of replacing rather than repairing roofs and air-conditioning/heating plant.

Pursuant to S.18(1) of the Landlord and Tenant Act 1927, a landlord's claim for damages for a failure to repair cannot exceed the actual diminution in value of the premises resulting from the disrepair. For example, if some of the services are operating satisfactorily but are so out-dated and inefficient that any new tenant would want them replaced by their modern equivalent, the landlord will not be able to recover the cost of repairing those services, which will be superseded by the improvements required.

The diminution in value is the difference at lease expiry between the value of the property in and out of repair. It is the additional amount any purchaser would have paid at that date if the property had been in repair.

If, as is sometimes the case, office premises would be more valuable if converted to residential accommodation, a tenant can argue that disrepair is irrelevant as there is no diminution in value. If the landlord has a settled intention to redevelop the premises at the end of the lease, the tenant is entirely freed from any liability for dilapidations.

Even if the same use is to be maintained, incoming tenants will often wish to entirely re-fit the interior of the premises to their own specification, so it will matter little to them whether the interior is in good decorative order or not.

Where premises are left in disrepair and the landlord chooses to upgrade rather than repair, then the case of Latimer v Carney (2006) confirms that the landlord can still claim damages if the premises would have been worth more in repair, but this case makes it clear that valuation evidence is important to establish what the true extent of the loss is. If, for example, the landlord replaces the roof but would not have done so if the old roof had been left in satisfactory repair, then the tenant cannot escape liability for the repair costs as the landlord can claim the cost of the repairs as these works would have been sufficient if undertaken and the value of the property would have been increased by a sum equivalent to the costs of these works.

As a result of the fact that a tenant may be able to rely on the diminution in value test, so as not to be liable in damages for all or any of the costs of repairs or reinstatement of alterations, and because it is often impractical or difficult to carry out repairs while still in occupation, tenants frequently do no works before vacating their premises. This can be a risky strategy as, if the landlord then proceeds to undertake all the repairs, the tenant will not only be liable for the costs and professional fees incurred (over which it has had no direct control), but can also be liable for loss of rent suffered due to the delay in the landlord being able to re-let the premises while the works are specified and then undertaken.

What an outgoing tenant needs to know in good time before its lease ends is; what repairs and reinstatement the landlord actually requires it to undertake so it can re-let the premises. With that knowledge, a tenant can then decide what works to do or what sum to offer in settlement so as not to have to do the works itself. Unfortunately, this often does not happen in practice because landlords often claim for every conceivable item of disrepair and complete replacement regardless of their intentions or because they are unable to state their intentions as they have not yet decided what to do with the premises on lease expiry.

Under the Pre-Action Protocol for Dilapidations Claims drafted by the Property Litigation Association, landlords are supposed to comply with the following:

  1. Serve a Schedule of Dilapidations no later than two months after the expiry of the lease. Of course, if a landlord is really keen for the works to be undertaken, it should serve its schedule in good time before the expiry of the lease so the tenant can, hopefully, undertake the requisite works or, if not, so the landlord can obtain specifications and tenders in anticipation of undertaking the works immediately the lease expires. The landlord's surveyor should include an endorsement within the schedule that all the works are reasonably required and the costs are reasonable, and that full account has been taken of the landlord's intentions for the property.
  2. If they have not yet carried out the works, to state whether they actually intend to do so and when and what steps have been taken towards getting the works done.
  3. Serve an S. 18 (1) valuation quantifying the claim if the landlord does not intend to do the works or, in some cases, has not yet commenced undertaking them. An S.18 (1) valuation states what the diminution in value of the premises is as a result of the disrepair so the tenant knows whether the claim is for the cost of the works or some lesser sum.

In practice, however, landlords and their surveyors are not always open with tenants as to what the true intentions are for the property and simply claim the cost of the works, regardless of whether these works will ever be undertaken or are necessary. As a result, tenants and their surveyors are frequently wary about settling dilapidations claims when the works have not yet been undertaken and, in order to minimise their liability, will often claim that any disrepair will be superseded or does not exist or cannot be carried out in a much cheaper way.

Because the parties can tend to take extreme positions, dilapidations claims have become very litigious and a large industry of forensic experts has grown up to deal with the surveying, engineering, and valuation issues. A game of cat and mouse can easily develop between the parties and their representatives.

In Business Environment v Deanwater Estates (2008) the landlord served a Schedule of Dilapidations claiming over £550,000. The claim was reduced by the time proceedings were commenced but was still over £400,000. The claim was finally settled for £1,073.50 and the landlord was ordered to pay the tenant's costs on an indemnity basis due to the gross exaggeration of the claim.

In September 2009, RICS instructed Leading Counsel to advise it on its Dilapidations guidance note and whether it is fraudulent for surveyors to exaggerate their claims or defences when acting for landlords or tenants. In January 2010, Guy Fetherstonhaugh QC advised in a written Opinion the following, that:

  1. Exaggeration is only fraudulent where the degree of exaggeration is dishonest.
  2. Surveyors preparing Schedules of Dilapidations, or responding to them prior to proceedings, are not acting as expert witnesses and can act as advocates for their parties and maintain arguments they might not necessarily believe in to further their client's causes. However, while they do not have to be altogether truthful, they should not set out to lie or deceive and should not behave without integrity.

It is, therefore, unlikely that the QC's Opinion will change current practice. The vast majority of dilapidations claims are settled without proceedings being necessary but not without substantial cost and delay being incurred in some of them due to the polarised positions taken by each party and/or their representatives.

If the surveyors or valuers had to act at all times as if they were expert court witnesses, they would have to give their honest opinions at the start and could not make unjustifiable claims. Claims would settle far more quickly as a result and, often, more justly.

The Opinion does actually cast doubt as to whether the parties' advisors who have dealt with the claim up to proceedings can possibly then act as expert witnesses. An expert witness has to give independent and impartial evidence and it is difficult to see how any advisor can suddenly change from a passionate advocate and/or negotiator of its client's case to an unbiased witness uninfluenced by their previous role and actions. For example, a surveyor who claims a roof needs replacing when he really thinks repair will probably suffice is not easily going to admit that he has been exaggerating the claim, especially as his credibility as an expert witness will then be cast into doubt, if not destroyed entirely.


When a lease comes to an end, a tenant who is vacating can have a very substantial liability to the landlord for terminal dilapidations if it does not deliver up the premises in a good state of repair and/or re-instated to their former level

In Carmel Southend Limited v Strachan & Henshaw Limited (2007), the landlord claimed the roof needed over cladding with metal sheet panels and could not be patch repaired. To begin with, its surveyor had only claimed patch repairs but had then changed his position when it became apparent that the new tenant wanted a new roof. The Court held that the extent of repairs was determined by the terms of the lease and not an incoming tenant's requirements and did not accept the landlord's surveyor's evidence that the roof was at the end of its life.

At first glance, the perfect solution would be for leases to provide for a surveyor to be appointed by RICS and jointly instructed by the parties to establish the extent of disrepair at lease expiry and the damages payable. Such a surveyor would be independent and could require the landlord to make clear what its intentions are so any supersession likely can be brought into account. Some surveyor firms offer this service but it is rarely used in practice as parties are far more comfortable relying on their own advisors and need their own advice anyway as to what works they should carry out and whether to make any claim to begin with.

It is the landlords and tenants who have to pay the costs of dilapidations claims. The onus should really be on them, not their advisors, to be up front with each other so costs are saved and settlements are just and fair. If a director of the landlord had to personally verify any claim and state the landlord's intentions for the property when any schedule was served, it may be the case that claims would rather rapidly become less exaggerated.

However, at the moment, there are no signs of practices changing, although the Opinion obtained by RICS may serve as a timely reminder to all parties and their representatives that they must not go too far when seeking to advance their own interests.

Jonathan Ross is a Property Litigation Partner at Forsters LLP

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