Preparing and serving a dilapidations schedule

In some circumstances a landlord will also suffer consequential losses as a result of the tenant’s breaches (see Joyner v Weeks [1891]). While this section is limited to losses that relate to the amount of time that it takes to carry out the remedial works, other items may be appropriate, instead of or in addition to these. Such losses can include the need for temporary accommodation while the works are completed, interest charges if the works have to be funded, further damage caused to adjacent premises (for example, if a leak passes into an adjacent property), or, if the tenant is making the claim, loss of profit.

A claim for consequential losses may be voided where the landlord has delayed starting the works – see Undecided landlords.

For these heads of loss to be claimed, it is imperative that they relate directly to the fundamental breaches of the lease (see Scottish Mutual Assurance Society Ltd v British Telecommunications plc). If a landlord actually carried out the works but also completed additional works, such as upgrading the lighting, it is more difficult to prove this direct relationship, and a claim for the consequential losses may fail, even if the basic claim is successful.

If a tenant knows it will be unable to meet its repairing obligations, it could contemplate notifying the landlord of its predicament, so that the landlord was able to prepare itself to have the works carried out. This might serve to reduce the time taken up after the end of the lease in inspecting the building and preparing specifications. In certain situations, this ought to lead to a reduction in the landlord’s claim for consequential losses, as it would be under a duty to mitigate its losses by using this time to prepare itself.

Loss of rent

The most significant item is usually the rent (commonly referred to as ‘loss of rent’) that the landlord is unable to recover, because it cannot let the premises during the period of the remedial works (see Culworth Estates Ltd v Society of Licensed Victuallers [1991]). In many instances, the consequential losses will be similar to, if not greater than, the claim itself, particularly when loss of rent is a valid head of claim.

It is important to distinguish between the period of time that would have been required to let the building which the landlord would have encountered anyway, and the time that is specifically related to correcting the tenant’s breaches of covenant. The landlord may not have been aware that the tenant was not going to comply with the terms of the lease until immediately after the lease ended. As such, the landlord’s loss will accrue for the time that it would legitimately take to prepare specifications for the work, obtain tenders, decide which tender to select and appoint the contractor. Thereafter, there will be a period while the contractor mobilises its resources, followed by the actual construction period.

The times allowed for these individual elements, or indeed, whether allowances are required for them at all, will depend on the nature of the particular claim being considered, and must reflect a reasonable assessment. It is not reasonable to charge for the period that it takes to negotiate a settlement with the tenants. The landlord is under an obligation to mitigate its losses as far as is reasonable and it should assume that it will start the works within a reasonable time, irrespective of whether there has been a settlement.

Contrary to these points, some leases specifically state that a tenant, if found to have breached the dilapidations covenants, will also be obliged to make a payment to cover a period of rent. This is a specific covenant and can only be satisfied by being performed. In theory, neither a diminution in value argument nor proof that the works did not give cause to a loss of time in reletting will affect the entitlement to enforce the clause. For example, it is hard to see how such a clause would fall within the ambit of Section 18. Whether a court would agree if the issue came to be considered by it is another matter. See Damages for more information.

Loss of service charge

Other regular items of consequential loss include the service charge that the landlord can no longer recover and the void rates that the landlord is forced to pay during this period together with any applicable insurance premiums. The landlord is entitled to claim the void rates from the start of the period and to ignore any rates ‘holiday’ that accrues from the date that the building becomes vacant. This is because, had the tenant complied with its obligations, the landlord would have had the benefit of this period to cover the likely marketing void. Void rates vary between property types and authorities, therefore the surveyor should consult the local authority involved for clarification.