Tenants of business premises are nearly always
required to “yield up” in good repair at the end of their lease.
Before the parties rush to instruct their surveyors, they should
both check whether the Lease in question obliges the Tenant to put
the property in a state of repair no worse than recorded in a
Schedule of Condition attached to the Lease.
Taylors recently acted for a tenant who was threatened with a
substantial dilapidations claim at the end of its Lease. However,
the Landlord’s surveyor had overlooked the Schedule of Condition. At
a stroke, this reduced the Landlord’s claim by over £100,000!
The normal measure of damages for breach of a covenant to repair at
the end of a Lease term is the cost of putting the premises into the
state in which the Tenant ought to have left them. However,
Landlords and Tenants should take note of the “cap” on damages
imposed by Section 18(1) of the Landlord and Tenant Act 1927. This
limits damages to the diminution in value of the reversion (usually
the freehold). In certain circumstances this can reduce a claim
which may be substantial on a “cost of works” basis to virtually
nothing – a happy day indeed for a Tenant served with a depressingly
long list of defects by its former Landlord.
If a Landlord can establish that it has or will carry out the
requisite work (which should be set out in a “Scott” Schedule of
Dilapidations) this does make a strong case for an entitlement to
damages on that basis (subject to the section 18 cap).
However, where there is little chance of the Landlord actually doing
the repairs the estimated cost is unpersuasive evidence of the
existence of any damage or its amount. In such a case it is even
more important for the Landlord to put forward evidence of an actual
reduction in the value of the premises as a result of them being in
disrepair. This is where section 18 can be a powerful weapon for a
In two recent cases the Court found that at the end of the Lease the
properties were effectively obsolete and were worth just as much in
their dilapidated state (for example to a developer) than in a full
state of repair. In one of these cases the Landlord costed the works
at £340,000. However, since the Court found the most likely buyer of
the property would have been only remotely concerned about the level
of disrepair, applying the section 18 “cap” the Court only ordered
damages of £40,000.
Another part of section 18 also provides that if the Landlord
intends to pull the property down or make significant structural
alterations shortly after termination (which would render the
repairs effectively useless), again, it is not entitled to damages.
The recent case of Latimer –v- Carney  highlights the
importance of the parties’ obtaining expert surveyors’ evidence upon
diminution in value at an early stage, otherwise it is extremely
difficult to predict what approach the Courts will take in assessing
the appropriate level of damages.
The following points should therefore be considered by both
Landlords and Tenants in any dilapidations dispute:
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- Take legal advice upon the terms of the Lease. Your
solicitor will advise upon the extent of your repairing
obligations including the precise effect of any Schedule of
- The Landlord’s surveyor should inspect the property as soon
as possible after the end of the Lease and provide a Schedule of
Condition. The Tenant’s surveyor should then provide a Schedule
responding to each item. Both surveyors should give their
opinion upon the difference in value (if any) between the
property in its current state and its state if the Tenant had
complied with its repairing obligations (is the property
obsolete/ripe for redevelopment?).
- Both parties should follow the procedure for such disputes
set out in the catchily titled Pre-Action Protocol for Damages
in Relation to the Physical State of Commercial Property at the
End of a Lease. If the matter proceeds to Court, sanctions can
be imposed on parties who fail to follow the procedure.
- If the Landlord moves in with huge bulldozers, call your