Rising dilapidations disputes: Why it is happening and what you can do about it

Why are dilapidations disputes rising?

The post-pandemic commercial property market has produced conditions that have led to dilapidations disputes rising. Vacancy rates across retail and office stock remain high in many locations, which means landlords are not always able to guarantee that reinstatement works will be carried out in good time.

As well as this, landlords who have held property through a period of lower rents and rising costs are more motivated to recover legitimate dilapidations costs at the end of the lease agreement. Where those claims are substantial, tenants are increasingly likely to challenge them rather than settle quickly.

Furthermore, many leases that are now expiring were granted in periods when repair obligations were drafted loosely or where schedules of condition were either not prepared or not properly attached. Uncertainty in the lease documents often benefits the party willing to take legal action, as it creates potential grounds for dispute.

What does serving a schedule of dilapidations involve?

A schedule of dilapidations is the document in which a landlord sets out the alleged breaches of the tenant's repairing, decorating, and reinstatement requirements. It is typically served either during the term or when the lease expires.

To be effective, the schedule of dilapidations needs to be accurate and properly costed. A schedule that overstates the claim, whether through inflated costs, items not covered by the lease, or works that the landlord has no genuine intention of carrying out, can be challenged and could undermine the landlord's position in any future negotiations.

The Dilapidations Protocol, which forms part of the Pre-Action Protocol framework in England and Wales, sets out the process parties should follow before the start of any litigation process.

This includes the landlord's obligation to provide a fully costed breakdown of the works being claimed, and the tenant's right to formally set out which items they accept or dispute. Both sides are expected to follow the Protocol, and a court can penalise either party on legal costs if they do not.

When does a letter before action become necessary?

Not all dilapidations disputes reach the stage of formal legal action, however, if a negotiation has stalled, a letter before action signals that the landlord intends to take the dispute further. The letter should clearly state the following:

·       The amount sought.

·       Reference the schedule and any communication already exchanged.

·       Confirm that the Pre-Action Protocol has been followed.

·       Include a set deadline for the tenant to respond.

For tenants, receiving a letter before action is a signal that professional advice is needed quickly. A surveyor experienced in dilapidations can assess:

·       How viable the landlord's claim is item by item.

·       Identify where costs are overstated.

·       Set out a counter-position that puts the tenant in the best position to negotiate or defend.

In many cases, the right response to a letter before action is to work through the claim carefully, point by point, rather than accept or reject it outright. A surveyor with dilapidations experience is best placed to help with this.

Dilapidations dispute resolution scheme: Options short of court

RICS Dilapidations Dispute Resolution Scheme

The RICS Dilapidations Dispute Resolution Scheme provides an alternative to litigation, offering independent expert adjudication to resolve the claims that the parties cannot settle themselves. It is designed to be faster and less costly than court proceedings, as well as it being considered more appropriate where the dispute is mostly technical.

Mediation

A skilled mediator can help both parties reach a settlement that is grounded in what is fair and practical for both sides, rather than what a court might theoretically decide.

Independent Review

Where the parties have already exchanged schedules and Scott Schedules, a confidential meeting between the respective surveyors, or an independent review of the outstanding points, can often bridge the gap more quickly than any formal process.

What can I do to protect my position?

Whether you are a landlord or a tenant, the most effective protection against a dilapidations dispute is done well before lease expiry. The steps that make the greatest difference are:

•       Ensure the lease documentation is clear - Ambiguous repair and reinstatement clauses create disputes. If you are entering into a new lease or renewing, invest in properly drafted heads of terms and ensure your solicitor understands the implications of each clause.

•       Commission a schedule of condition at the start of the lease - For tenants, this is one of the most valuable protections available. A properly prepared and attached schedule of condition limits your repairing liability to the state of the property at the start of the term.

•       Take professional advice early at lease end - Whether you are preparing to serve a schedule of dilapidations or you have just received one, bringing in an experienced surveyor early will often determine how the dispute unfolds.

•       Engage with the Pre-Action Protocol - Courts often have a negative view of parties who ignore the Protocol's requirements. Following the process properly also creates opportunities to narrow the dispute before it becomes costly.

•       Consider dispute resolution options before taking on proceedings - Adjudication, expert determination, and mediation are all faster and cheaper than litigation and produce outcomes that both parties can be satisfied with.

Speak to our expert team about dilapidation disputes

Our specialists in building and property consultancy can assist landlords and tenants in dilapidations disputes across all types of commercial property.

We have more than 180 years of experience in the property sector, a proven track record of success, and consistent positive reviews from previous clients. On top of this, we understand that every dilapidation dispute is unique, which means that we create tailored plans to increase your chances of a positive outcome.

If you need assistance with the preparation and service of schedules of dilapidations, responding to claims, and being represented through negotiation, mediation, and formal dispute resolution processes, call 0330 191 8107, email [email protected], or complete the contact form on our website to arrange a consultation.