Key dilapidations issues

There are many pieces of legislation that, although primarily imposing obligations on occupiers of property and their business, often have an impact in dilapidations claims.

That they do is because most leases contain provisions requiring the tenant to comply with statutes and regulations that, apparently, affect the property.

Careful consideration needs to be given to the particular statute, regulation or by-law. Some operate if certain notice is given so, if no notice has been given, then the covenant does not bite. Some do not affect property in existence at the time the legislation is introduced, so older properties will be excluded from their ambit. For example, as most building legislation, such as the Building Act 1984, cannot be retrospectively applied to existing buildings, but only to new construction, it cannot relate to the premises. Codes of practice, such as the regulations of the Institute of Engineering and Technology or of the British Standards Institution, are not statutes or by-laws and so are irrelevant in these leases.

Examples of legislation that are regularly considered are: the Health and Safety at Work etc. Act 1974, the Equality Act 2010 (which supersedes the Disability Discrimination Act 1995) and the Control of Asbestos at Work Regulations 2012.

In the case of asbestos, for example, although known to be harmful, the fact that it is present in a property does not necessarily mean that there is an obligation to remove it. While the asbestos remains ‘in repair’ or undisturbed, no such obligation arises (although it might as a result of legislation like the Health and Safety at Work etc. Act 1974). But if asbestos-affected parts of the property fall into disrepair or if an area of the property is out of repair and can only be repaired in a manner that, somehow, would cause the asbestos to be disturbed, then, at the very least, the asbestos affected area would have to be isolated or, more likely, removed. In such circumstances, the work to the asbestos-related area should be undertaken in accordance with the relevant guidelines. Equally, if the tenant installed the asbestos contrary to relevant legislation and therefore (in all likelihood) in breach of the lease, the landlord could look to the tenant for the cost of removal. During the currency of the lease there will be duties regarding the management of asbestos arising from the Control of Asbestos Regulations 2012. (See the HSE asbestos campaign for more details). (Surveyors should also consult the RICS guidance note, Asbestos and its implications for members and their clients, 3rd edition, published in 2011).

In the case of other types of legislation, such as the Health and Safety at Work etc. Act or the Equality Act, and dilapidations claims at the end of the lease, arguably there is limited impact, because the provisions depend on the presence of a workplace or provision of services to the public - which would not apply if the lease has come to an end and the tenant has vacated. During the course of the lease, the position might be different and the legislation may have to be implemented simply to comply with the terms of the lease. More often than not, the decision as to how the legislation is satisfied will be one for the tenant, not the landlord. Although the tenant may be well advised to complete the work for other reasons, such as under the obligations of the Occupiers' Liability Act 1957 (sections 1–3), the landlord cannot insist on this.

In the case of the Health and Safety at Work etc. Act, it is sometimes asserted that the effect of it is to require the introduction of modern lighting that is intended, for example, to reduce eyestrain. But one should note that while certain types of expensive or complicated lighting designs are employed, for the purposes of compliance with the lease and landlord and tenant law, there will often be alternative solutions to give effect to the legislative requirements. They may be cheaper than removing expensive equipment and might be all that the landlord can insist upon. In other words, the existence of the legislation will not necessarily result in expensive works being carried out.

One would have thought that similar principles would apply to the Equality Act. In addition, one might imagine that, since the obligations primarily affect the public service provider or an employer, in the case of a letting of the whole of the property, it will be the tenant who has the obligation to comply with the Equality Act and, in the case of multi-let property, it might be the landlord. Again, there may be a variety of ways in which the Equality Act can be satisfied and, in a dilapidations case, it is not necessarily for the landlord to dictate which option should be (or should have been) implemented.

Under the Regulatory Reform (Fire Safety) Order 2005 there is a duty for occupiers and employers (among others) to carry out a fire risk assessment. For more information see the CLG website fire safety pages.

Under EU Regulation (EC) No. 1005/2009 the maintenance and servicing of air-conditioning systems containing an HCFC gas (R22 being the most common) that involves breaking into the refrigerant circuits is prohibited, effectively rendering them obsolete. Additionally, the EU F-gas Regulations (2014) will also similarly phase out the permitted use of HFC refrigerants with a high Global Warming Potential by 2030, including, amongst others, the common R22 replacement, R422D. This raises important dilapidations questions in terms of both ‘repair’ and compliance with statute. In determining whether a tenant has a liability to replace or refurbish/convert an R22/R422D – containing system it must first be determined whether or not the particular lease clauses encompass European regulations. However, even the lease’s coverage does include European regulations there is still doubt as to whether a properly functioning R22 system will be in breach of the ‘compliance with statute’ clause. Given the potentially large sums at stake, court cases are almost inevitable, but should serve to provide greater clarity in this area.

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 will, no doubt, also promote interesting debate from a dilapidations perspective. By 1 April 2018, landlords will not be able to grant a new lease of a property that fails to meet minimum energy efficiency standards (currently set at an EPC ‘E’ rating), unless the landlord has carried out 'relevant energy efficiency improvements'. The legislation will be broadened to encompass existing leases by 2023. There is a great deal of uncertainty as to whether (in the absence of specific disrepair) landlords will be successful in claiming against tenants for failure to ‘comply with statute’ where energy efficiency improvements have not been carried out. More guidance is expected but there can be little doubt that this potentially highly contentious issue will be explored in the courts in the years to come.

It is advisable that the landlord should address compliance with statute issues during the term of the lease.