Dilapidation Claim:
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What is dilapidation Claim ?
A dilapidations claim refers to a situation where a commercial landlord and its tenant are in disagreement regarding the fulfilment of repair, reinstatement, and redecoration obligations during the tenancy’s duration. This claim arises when there is a dispute over the extent to which these responsibilities have been met. Dilapidations claims can escalate rapidly, emphasizing the need for careful handling to minimize financial expenditure and the risk of potential court action. Resolving these disputes often involves negotiations and legal considerations to reach a mutually agreeable resolution between the landlord and tenant.
Types of Dilapidations Claims:
There are two distinct categories of dilapidations claims: interim and terminal. Each serves a specific purpose and is explained below:
- Interim Claims:
- Nature: These claims are initiated by the landlord while the lease is still in effect. The primary goal is to ensure tenants fulfil their obligations promptly, addressing any non-compliance swiftly and at an early stage.
- Purpose: Interim claims aim to keep tenants on track with their responsibilities during the lease term, preventing potential issues from escalating.
- Terminal Claims:
- Timing: Terminal claims are made after the lease has concluded.
- Purpose: These claims are appropriate when the lease has ended, allowing the landlord to make a final dilapidations claim. At this stage, the landlord has a clear understanding of the breaches that need rectification, the costs associated with remedial work, and any financial losses they may incur.
- Components: Terminal claims may encompass various elements, such as professional fees, loss of rent during the period of remedial work, and payment of service charges and utility rates.
Understanding these distinctions is crucial for landlords and tenants involved in commercial leases, as it helps establish the timing, scope, and objectives of dilapidations claims.
Who can bring a dilapidations application:
A dilapidations claim must always be started by the landlord.
To bring a dilapidations claim, landlords typically need to gather relevant evidence in accordance with the Dilapidations Protocol, as dictated by the Civil Procedure Rules. Here are key steps and evidence requirements:
- Dilapidations Protocol:
- Guidance: The Dilapidations Protocol provides a framework for handling dilapidations disputes. It outlines specific procedures and requirements that parties involved must adhere to.
- Surveyor Inspection:
- Initial Step: Landlords should instruct a qualified surveyor to inspect the property.
- Document Preparation: The surveyor is tasked with preparing a comprehensive document known as a ‘schedule of dilapidations.’ This schedule outlines the alleged breaches of repair, reinstatement, and redecoration obligations.
- Schedule of Dilapidations:
- Prescribed Document: The schedule of dilapidations is a prescribed document under the protocol.
- Contents: It details the specific issues observed, the extent of the alleged breaches, and any associated costs for remedial work.
- Photographic Evidence:
- Visual Documentation: Supporting the schedule, photographic evidence can strengthen the landlord’s case. Clear photographs of the observed dilapidations provide a visual record of the property’s condition.
- Documentation of Tenancy Terms:
- Tenancy Agreement: Having a copy of the tenancy agreement is crucial. It serves as a reference point for understanding the terms and conditions regarding repair, reinstatement, and redecoration obligations.
- Cost Estimates and Invoices:
- Financial Documentation: Providing estimates or invoices for the cost of necessary remedial work strengthens the claim. This includes details of professional fees, materials, and labour costs.
- Communication Records:
- Correspondence: Any communication between the landlord and tenant regarding the alleged breaches should be documented. This includes notices, requests for repairs, or responses from the tenant.
- Tenant’s Counter-Evidence:
- Tenant’s Response: Landlords should also be prepared for potential counter-evidence from the tenant. This could include their own surveyor’s report, evidence of maintenance efforts, or disputes regarding the alleged breaches.
By following the Dilapidations Protocol and compiling a robust schedule of dilapidations supported by relevant evidence, landlords can strengthen their position when bringing a dilapidations claim. It is advisable to seek legal advice to ensure compliance with the protocol and to navigate the complexities of dilapidations disputes.
The Schedule of Dilapidations:
The schedule of dilapidations plays a pivotal role in initiating a dilapidations claim, serving as the foundation for the landlord’s case. It meticulously lists alleged breaches of covenant by the tenant related to the property’s condition, outlining required repair, redecoration, and reinstatement work. Alongside these details, the schedule provides a comprehensive financial breakdown, estimating costs for materials, labor, and professional fees. A crucial component, the ‘Quantified Demand,’ further substantiates the landlord’s claim for compensation with a clear and quantifiable summary. Adhering to a strict timeline, the landlord must serve the dilapidations claim within 56 days of the lease’s conclusion, ensuring timely communication and initiating the legal process. This document acts as a transparent communication tool, fostering a clear understanding of the landlord’s claims and allowing the tenant an opportunity to respond appropriately.
Making a Dilapidations Claim: Step-by-Step Guide
The process for making a dilapidations claim, as per the Dilapidations Protocol, involves several key steps:
- Schedule of Dilapidations:
- The landlord initiates the process by sending a schedule of dilapidations and Quantified Demand to the tenant within 56 days of the lease’s conclusion.
- Tenant’s Response:
- The tenant must respond within 56 days, confirming whether they agree or dispute the alleged breaches and specified remedial works outlined in the schedule.
- Without Prejudice Meeting:
- Landlord and tenant, along with professional advisors, are encouraged to meet on a ‘without prejudice’ basis within 28 days following the tenant’s response. The goal is to resolve or narrow down the issues in dispute.
- Alternative Dispute Resolution (ADR):
- Parties are encouraged to consider ADR processes like mediation, early neutral evaluation, or expert determination to resolve the claim.
- Detailed Quantification of Losses:
- If no settlement is reached, the landlord provides a more detailed quantification of losses. This could involve a formal diminution valuation or an account of expected expenditure and financial costs.
- Section 18 Defence:
- If the tenant wishes to raise a Section 18 defence related to diminution in value, it must be confirmed within 56 days of the detailed quantification of losses.
- Stocktake:
- Parties take stock, assessing the progress and discussing any remaining disputes before proceeding to the next stage.
- Court Submission:
- As a last resort, if settlement is unattainable, the landlord can submit the claim for determination by the court.
Legal Restrictions and Timelines:
- Statutory Cap: Section 18(1) of the Landlord & Tenant Act 1927 imposes a statutory cap on damages, limiting them to the lower of the cost of remedial works or the effect on the property’s value.
- Timing of Claim: While the schedule of dilapidations should ideally be served within 56 days of the lease’s end, there’s no legally enforceable restriction. Technically, a claim could be made within 6 years (or potentially 12 for a lease that is also a deed).
Challenging a Dilapidations Claim:
- Tenant’s Response: Upon receiving the schedule, a tenant should provide a formal response within 56 days, addressing each item and outlining the reasons for disagreement.
- Objecting to Costs: If repair costs seem excessive, the tenant can object early, instructing their surveyor to assess the property and provide a valuation.
Costs and Prevention:
- Costs: In case of court proceedings, the losing party bears significant costs. Compliance with the Dilapidations Protocol is considered when determining cost responsibility.
- Prevention: Properly drafting leases with clear clauses, defining wear and tear, regular property inspections, and addressing potential issues early can prevent disputes. Seeking assistance from commercial property solicitors is crucial.