What are dilapidations and how are they managed?

Dilapidations are items of disrepair that are covered by a repairing covenants contained in a lease. The term is often used to describe breaches of the tenant’s covenants relating to the physical state of the premises when the lease ends.

Breaches of the following types of lease covenants could give rise to liability in respect of dilapidations:

  • Covenant to comply with statute.
  • Covenant to repair
  • Covenant to decorate
  • Covenant to reinstate at the end of the term.

There are four remedies available to a landlord when dilapidations occur:

  1. Damages. A landlord’s right to claim damages for breach of a repairing covenant derives from Section 1 of the Leasehold Property (Repairs) Act 1938 and Section 18(1) the Landlord and Tenant Act 1927. Due to various restrictions under the latter Act, seeking damages may not be the most preferred remedy by a landlord, but it is the only option once the lease has ended.
  2. Forfeiture. This remedy is only available to a landlord if the lease provides an express right of re-entry, and a landlord must have served a Section 146 Notice on the tenant in a prescribed form and invite the tenant to serve a counter-notice when the Leasehold Property (Repairs) Act 1938 applies. Taking the step of serving Section 146 Notice would not preclude forfeiture by the landlord at a later date if the tenant fails to act to rectify the alleged breaches. However, a landlord must be aware of a waiver of the right to forfeit and the tenant’s right to apply for relief from forfeiture proceedings.
  3. Self-help. When the lease permits, a landlord can enter the property and carry out repair works then recover the cost from the tenant as a debt (known as Jervis v Harris clauses following the decision in Jervis v Harris [1995] EWCA Civ 9). This remedy circumvents the restrictions associated with seeking damages as discussed above, and it is much more practical than the forfeiture option.
  4. Specific performance. This remedy is an equitable one and, as a general rule, specific performance will only be granted where damages would not be an adequate remedy as compensation for the breaches committed by the tenant.

A key distinction as to how the damages are assessed in dilapidations claim for breach of a tenant’s repairing obligation depends on when the claim is brought:

  1. If the claim is brought during the term of the lease, the starting point for calculating the measure of damages is the diminution in the value of the reversion of those premises.
  2. If the claim is brought following expiry of the term, the measure of damages is the reasonable cost of doing the works plus loss of rent for the period until the works have been completed, where appropriate

Dilapidations is a complicated and often contested matter between the parties. Whether you are a tenant or a landlord, we recommend that dilapidations are managed carefully by a building surveyor with the assistance of a real estate lawyer.