Key dilapidations issues

Some specific repair issues

There are a number of ways in which a covenant to repair can be expressed. In simple terms, the obligation will be ‘to repair’ the property. Sometimes, however, the obligation appears to be qualified or that simple expression is modified.

For example, the obligation may be to ‘put the property into repair’. Where such words are encountered, one might conclude that the intention was that the tenant would be obliged to carry out whatever work was required to bring the condition of the property up to a level that would be considered ‘in repair’. In other words, the expression contemplates that the property is not in repair when the lease is entered into or it might fall out of repair and the tenant has to address that. Sometimes such covenants to put property into repair are further modified such that it appears that there is a timeframe for doing so, for example, by the use of words such as ‘forthwith’ or by reference to a specific date or a period of time. In the case of the former example, the obligation may require that the repairs are carried out within a reasonable time and, in relation to the latter example, the tenant will be in breach if it has not complied with the obligation by the date specified (although there is sometimes room for doubt about when the period begins and ends if the obligation is dependent on some other event occurring).

Alternatively, the obligation may be to ‘keep in repair the property’. Such an expression adds little to the covenant to repair and, if the property is not in repair (whether when the lease is entered into or during the term of the lease), it still requires the tenant to put it into repair.

Note that a covenant simply using the words ‘to repair’ implies ‘to put in repair’ and ‘to keep in repair’.

In almost all cases, the obligation to repair is present whether or not the tenant (or the landlord where a repairing obligation is retained for all/part of the property – see Daejan Properties Ltd v Griffin (2014)) is actually aware of disrepair. However, in some limited cases the obligation may be linked to the tenant being given or having notice of the disrepair. If there is such a limitation, then the tenant (or landlord, if the obligation is on the landlord) will not be in breach unless notice has been given and requisite action not taken within any time limits (if there are any - sometimes the lease provides that the tenant may have two or three months to carry out the work). Covenants providing for the landlord to enter, carry out work and recover the cost from the tenant are considered under Jervis v Harris.

For obvious reasons one needs to identify and understand the covenant to repair and its extent (its extent may be limited in some way, for example, by reference to a schedule of condition), but it is also necessary to do so because it is this covenant that is affected by section 18 of the Landlord and Tenant Act 1927.

For a more detailed discussion of the variations on the covenant to repair, see Dowding and Reynolds, chapter 14.

The covenant to repair carries with it an implied covenant not to destroy the subject matter of the covenant, in whole or in part.

See Devonshire Reid Properties Ltd v Trenaman (1997) and Hannon v 169 Queens Gate Ltd (2000).

Cases concerning the extent of the property to which the obligation attaches

Cases concerning the extent of the work required or permitted by the obligation

Cases illustrating the approach of the courts to particular parts of a property

It is important to treat reference to case law with caution. Each case turns on its own facts and cannot necessarily be relied upon as determinative of how the court would decide on a specific problem.

Mechanical and electrical equipment

It is not appropriate to claim that equipment such as boilers needs to be renewed just because it has come to the end of its theoretical life. (The Chartered Institute of Building Services (CIBSE) publish guidance on the expected life spans of such equipment.) This is because the issue is whether the equipment functions correctly or not, and this should be assessed by way of an inspection of its condition and by research into its maintenance history (see Fluor Daniels Properties Ltd v Shortlands Investments Ltd [2001] 2 EGLR 103). This is a particular issue during the continuation of the lease, where the landlord carries out works, the cost of which is recoverable as a service charge. The landlord sometimes seeks to ‘improve’ the building, essentially at the cost of the tenants paying that service charge. The Fluor Daniels case considered just that point and significantly curtailed the landlord’s activities.

Generally, providing that the equipment is functioning, or can be made functional with repairs to a level that would have been an acceptable standard at the commencement of the lease, it will be deemed to be in repair (Ultraworth Ltd v General Accident Fire and Life Assurance Corporation plc [2000]).

With advances in technology, it is not uncommon to find that when a piece of equipment needs to be replaced an exact replacement is no longer available, or no longer meets regulatory standards, and its nearest equivalent is often superior. This may, on the face of it, look like an improvement. However, the fact that repairs incorporate some improvements in design does not mean they cease to be works of repair as long as the replacement is broadly the same sort of installation as that which is being replaced.

There may be a situation where the plant works on the last day of the lease, but where its life expectancy is so short thereafter that it will not be in a standard that would have been acceptable at the beginning of the lease. In seeking to assess this, it will be necessary to consider the duration of the tenant’s interest. If this was relatively short, the plant is unlikely to have deteriorated to such a degree that it is not of a similar condition to that at the commencement of the lease (see Holding & Management Ltd v Property Trust and Investment Trust plc [1990] 1 EGLR 65).

Under EU Regulation (EC) No. 1005/2009 the maintenance and servicing of air-conditioning systems containing an HCFC gas that involves breaking into the refrigerant circuits is prohibited. R22 is the most commonly used HCFC gas. In terms of dilapidations, a tenant’s liability in respect of R22 equipment will depend very much on the lease terms and it may be the case that in the absence of actual disrepair there is no liability. However, as most modern leases are more widely drafted (to include words such as replace, renew and ‘to keep in good working order’) a tenant may be under an obligation to replace such installations.

Refurbishment (involving replacing the R22 with another refrigerant) could also be considered, although this can lead to reduced performance and other problems, which might collectively be construed as disrepair in itself. Additionally, one of the most common R22 refrigerant replacements – R422D – is (amongst a number of other gases) itself now subject to the EU F-Gas Regulations 2014. These regulations introduce controls on the use of refrigerants with a ‘Global Warming Potential’ (GWP) of over 2500 the equivalent amount of CO2. These controls will culminate in 2030 in a ban on the use of reclaimed refrigerant in existing systems which will mean that systems containing such gases will no longer be capable of being fully and properly maintained. This is of particular concern as there are now increased leak detection requirements for refrigerants with a high GWP.  

With potentially large amounts of money at stake, it is likely that this issue will be explored by the courts in due course. See also Compliance with statutes.

See also Undefined works (below) for commentary on electrical testing.

Asbestos

Dilapidations claims can be complicated by the presence of asbestos within a building. As a general principle, the mere presence of asbestos does not necessitate its removal, as long as it is in good condition – this is also the case with high alumina cement (HAC) in concrete. In Riverside Property Investments Ltd v Blackhawk (TCC, 8 December 2004) (which considered works to a roof which comprised asbestos cement roof sheets), the continued presence of asbestos in the original roof sheets that had not been replaced could not be a reason to contend that the defendant had breached its repairing obligation. If, however, asbestos is breaking down or the carrying out of the tenant’s works (including those necessary to comply with a dilapidations schedule) result in it being cut, drilled or disturbed, fibres will be released, thereby creating a risk to health. In this situation the asbestos will be deemed to be in disrepair and remedial works, usually in the form of removal or possibly encapsulation, will be required.

Before determining whether a particular party is responsible for disrepair involving asbestos, it is necessary to consider whose demise it is within. This will depend upon the terms of the lease, as well as the location and form of the asbestos. There are a few occasions when a tenant may still be responsible even where the asbestos is not within its demise. Such an example would be where asbestos formed the insulation of a floor slab for which the tenant had a non-structural responsibility, but on which the tenant had fixed partitions.

Be aware also that the Control of Asbestos Regulations 2012 also imposes obligations on duty holders to manage asbestos in non-domestic premises (see Compliance with statutes). One of the requirements is for the ‘dutyholder’ (dutyholder is defined in regulation 4) to maintain an asbestos register. The absence of an asbestos register is not usually a breach of the lease in a terminal dilapidations situation. This is for the same reasons as noted in Compliance with statutes, because the legislation is enacted under the Health and Safety at Work Act 1974. If however, the breach is during the term of the lease, it may well be that the tenant is breaching this Act if it is employing people in a manner that is not safe. Alternatively, if there is asbestos in disrepair that needs to be attended to, it is a requirement of the Construction (Design and Management) Regulations 2015 (CDM 2015) to record the works that have been undertaken in the health and safety file.

Surveyors who have any involvement with asbestos are advised to consult the RICS guidance note Asbestos.

Inherent defects

A commonly held misconception is that a tenant cannot be liable for defects in design that were apparent prior to the commencement of the lease and which subsequently lead to damage. However, as noted in Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1980] QB 12, generally, this is incorrect. It is possible for the damage caused by an inherent defect to form a breach of a tenant’s repair obligation. Additionally, if the only appropriate way of repairing this damage is also to correct the inherent defect, the cost of this will likewise fall under the tenant’s repair liability.

This principle would not apply if the effect of completing the repair would be to give back to the landlord something wholly different to that which was demised at the commencement of the lease. At this point, the repair would become an improvement and would not be a breach of a repair liability. An example of this in practice would be a demand to waterproof a cellar that was damp at the outset of the lease. Were the tenant to be obliged to complete these works, the landlord would get back a building that was different, with the use that could be made of the cellar wholly different to that which it was able to offer at the commencement of the lease. An alternative example could be that of a window that had rotted due to having incorrect weathering details. The window would need to be replaced, but the addition of the correct weathering would still result in the landlord having fundamentally the same feature (a window) returned to it.

If there is an inherent defect that is not causing any physical damage, even if theoretically this will occur at some point in the future, the landlord cannot insist on work being carried out to eradicate the defect. If there is no damage equating to disrepair, there is no breach of the obligation to keep in repair. Whether or not the defect will give rise to a breach in the future is a judgment that can only be made in the light of actual damage, should this eventually occur. For example, a metal-framed window may well cause considerable condensation, but this does not flow from any change in the condition of the window and is simply inherent in its nature. The condensation may lead to damage to finishes or plaster nearby and this may well be a disrepair, but the mere fact that the window is suffering from condensation is not in itself a breach of the repairing covenant.

Some leases have specific provisions that set out duties in respect of inherent defects or contain covenants in wider terms than simply to repair, or specifically inherent defects them from the repair liability. These are likely to change the principles noted above.

Of course, this is not always a tenant issue: it may be that the landlord retains an obligation to repair elements of the building. In Uddin & Anor v London Borough of Islington [2015], for instance, the landlord had an implied obligation to keep the structure and exterior of the dwelling in repair. The basement flat had rising damp and it was held that the landlord was liable to provide a damp proof course as the ongoing cost of repair (to the internal finishes and so on) out-stripped those of remedying the inherent defect – i.e. the provision of an effective DPC.

Undefined works

There can be no claim if it is impossible to define what is wrong with the premises; this is because it is a prerequisite of a claim for dilapidations that there is a provable breach of an obligation. It is the landlord’s responsibility to discover what the defects are.

If a breach cannot be ascertained, because it is unconfirmed or not capable of definition, then it is not possible to say that there has been a breach of covenant at all and that any compensation is due. Thus, in a claim for damages it is not possible to include a contingency allowance in the claim or to include provisional items, as these cannot be defined. A landlord can avoid this conundrum by undertaking the works itself. If, in so doing, it encounters works that were not foreseen, then these can, assuming that they are legitimate items, be added to the claim. Thus it could be a sensible tactic for the landlord to complete the works itself, so that it has a fully crystallised claim. There is little that a tenant can do to avoid this possibility once its lease has come to an end, although all of its other 'defences' remain.

For the same reason, it is not appropriate to include items for the testing of equipment within the building, such as electrical testing. While some leases include an obligation to maintain the electrical system in accordance with the regulations issued by the IET, the testing regime is a recommendation only, rather than a prescriptive obligation. The absence of testing is not, therefore, in itself a breach of the regulations, although any disrepair that the testing identifies could be. Thus the surveyor is faced with the choice of either identifying the nature of the disrepair or, if it is reasonable in the circumstances, completing the testing as part of the preparation of the schedule (which could result in it being at the tenant’s expense, if there is a covenant to pay fees).