The most common disputes between landlords and tenants relate to dilapidations and disrepair. A common reason for this is that disagreements will arise when the two parties fail to agree on what constitutes dilapidation and disrepair. The way in which the dispute is dealt with depends on several factors:
- the type of disrepair;
- the relationship between the parties; and
- whether the lease or tenancy has expired or is still within the term.
The term “dilapidations” generally refers to items of disrepair that are covered by repairing covenants contained in a lease. The term is often used to refer to terminal dilapidations, to cover breaches of the tenant’s covenants relating to the physical state of the premises when the lease comes to an end.
The following covenants are likely to give rise to the tenant’s liability for dilapidations:
- repairing covenants: these covenants will often refer to a Schedule of Condition accompanying the lease, which is a detailed photographic report prepared by surveyors outlining the condition of the property at the outset of the lease. This is a way for the landlord to provide clear and visual evidence of the expectations for the tenant.
- a covenant to comply with statute.
- a covenant to yield-up the property at the end of the lease: this clause will contain any obligations that specify the state in which the tenant is required to leave the premises at the end of the term.
- there may also be reinstatement covenants that will relate to alterations carried out by the tenant. These usually apply at the end of the term and will involve the tenant removing any fixtures and fittings and making good any damaged caused by such removal.
These types of covenant are normally contained in the lease, but additional obligations might also be found in a supplemental document such as a licence for alterations or deed of variation.
If the landlord is of the view at the end of the term that the tenant has failed to comply with its repair and yielding-up clauses under the lease, the landlord is entitled to claim against the tenant.
The parties to a dilapidations dispute must follow the Pre-Action Protocol for Claims in Relation to Damages for the Physical State of Commercial Property at Termination of a Tenancy (the Dilapidations Protocol). The Dilapidations Protocol provides for the following steps to be taken:
1. The landlord must send a Schedule of Dilapidations to the tenant within 56 days after the termination of the tenancy. The Schedule of Dilapidations must identify:
- the relevant lease obligations;
- the alleged breach of those obligations;
- in certain circumstances, remedial works that have been completed or are proposed in order to rectify each alleged breach; and
- potentially the estimated or actual cost incurred in rectifying those breaches.
The Schedule of Dilapidations will commonly be prepared in anticipation of the end of the lease term, which will refer to the yield-up obligations. The document is usually prepared by a building surveyor.
2. The landlord must also send a Quantified Demand to the tenant within 56 days of the termination of the tenancy. This will set out all aspects of the dispute and the monetary sums sought. The claim is likely to be the cost of the landlord’s loss, which is not necessarily the cost of remedial works.
3. The tenant should send their response to the landlord within 56 days after the landlord sends the Quantified Demand. The tenant should normally respond using the landlord’s schedule and in sufficient detail to enable the landlord to properly understand the tenant’s position on each item. The tenant should also state if they consider any items to be superseded by works carried out by the landlord. If the tenant believes the schedule’s cost of repairs is higher than the loss in value caused to the property, they should instruct a chartered surveyor to produce the valuation necessary under section 18 of the Landlord and Tenant Act 1927 (the LTA 1927).
4. The parties should then meet prior to and 28 days after the tenant’s response. The parties will attempt to reach a settlement and there are alternative dispute resolution services available. If all the pre-action methods are unsuccessful, the parties can take the unresolved disputes to court.
Remedy for the landlord
If the landlord’s dilapidations claim against the tenant is successful, he or she will be entitled to damages from the tenant. The measure of damages is the reasonable cost of carrying out the works, plus the loss of rent until the works have been completed (where required).
There are statutory restrictions on the damages recoverable. Section 18 (1) of the LTA 1927 limits the damages available for a breach of a covenant to leave the premises in repair on termination of a lease. It provides that damages are:
- Limited to the decrease in value of the landlord’s reversion caused by the breach.
- Not recoverable where it can be shown that the property, in whatever state of repair it might be, is to be pulled down or where structural alterations are to be carried out at the end of, or shortly after the end of, the term such that any repairs would be rendered valueless.
The restrictions under section 18 (1) of the LTA 1927 do not apply to breaches of other tenant covenants, such as reinstatement of alterations or the removal of fixtures at the end of the term. Damages for breaches of these covenants will be assessed under common law principles.
As well as at the end of the term, the tenant will also have to observe repair and decoration covenants during the term of the lease.
A lease will often include a provision allowing the landlord to enter the property (on giving reasonable written notice to the tenant) to inspect the property and to ensure that the tenant is complying with their obligations under the lease during the term.
Remedies for the landlord
If the landlord finds that the tenant is in breach of their repair obligations under the lease, the following remedies are available:
- Self-help: most leases will often contain provisions which entitle the landlord to enter the property during the term of the lease, carry out any repair works and then recover the cost of doing so from the tenant. If the landlord exercises this right under the lease, its claim for the cost of the work is treated as being the recovery of a debt rather than a damages claim. If the lease does not contain such a term, if the landlord enters the property, it may constitute a trespass.
- Forfeiture: almost all leases include a forfeiture clause. This entitles the landlord to forfeit the lease for a breach of covenant, including a covenant to repair. In order to forfeit the lease, the landlord must serve a section 146 notice on the tenant, which must specify the particular breach complained of, require the tenant to remedy the breach and require the tenant to pay monetary compensation for the breach (see: Forfeiture ).
- Specific performance: in some cases, it may be appropriate to ask the court for an order to compel the tenant to carry out the repairs. However, there will usually be a more suitable method of sorting the dispute.
- Damages: in this case, the starting point for calculating the damages is the diminution in the value of the reversion and not the cost of the repairs. The reason for this is that while the tenant is in the property, the landlord is not in a position to expend the damages on repairs in any event. The damages are assessed under common law principles.
A lease will often include obligations on the landlord to be generally responsible for keeping the property in repair (see: Disrepair). The landlord will usually only have to make these repairs once they are aware of the problem, so it is the tenant’s responsibility to inform them of any issues.
Before taking court action, the tenant must follow the Pre-Action Protocol for Housing Disrepair Cases Wales (the Disrepair Protocol). This protocol applies to disrepair claims in Wales only. In accordance with the Disrepair Protocol, the following steps must be taken:
- The tenant should serve a letter of claim on the landlord at the earliest reasonable opportunity. If the repairs are urgent, the tenant should consider serving an early notification letter on the landlord prior to serving a letter of claim. The Disrepair Protocol confirms the matters that should be included in a letter of claim.
- The landlord must respond to the letter of claim within 20 working days of receipt. Receipt is deemed to take place two days after the date of the letter of claim. A failure by the landlord to respond to the letter of claim in time or at all is regarded as a breach of the Disrepair Protocol and means that a tenant is then free to issue court proceedings.
- Potentially, the parties can agree to a single joint expert providing a report or an agreed schedule following a joint inspection of the property. Paragraph 7.1 of the Disrepair Protocol provides detailed guidance on the instruction of experts. Paragraph 7.7 of the Disrepair Protocol also provides guidance on agreeing terms and fees for instruction of the expert.
- The landlord must also provide further information to include whether they admit liability and if necessary, a schedule of intended works, any offer of compensation or any offer for costs. This information must be provided either within the landlord’s response to the letter of claim, or within 20 working days of receipt of the expert’s report or schedule (if applicable).
If the tenant’s claim is settled via the Disrepair Protocol on terms that justify bringing the claim, the landlord should pay the tenant’s reasonable costs or out of pocket expenses.
If the dispute does not settle via the Disrepair Protocol, the tenant can take court action against the landlord. The tenant must take court action within six years from when they inform the landlord about a problem they should repair, and they do not do anything about it in a reasonable time.
Remedies for the tenant
If a court claim against the landlord is successful, the court can award the following remedies to the tenant:
- They can make the landlord carry out the repairs by making an order for specific performance or a mandatory injunction;
- They can make a declaration that the tenant can carry out the repairs and deduct the cost of those repairs from future rent; or
- They can also award damages to put the tenant back in the financial position they would have been in had the landlord made the repairs when they should have done. The tenant can receive damages if they have been injured or made ill as a result of the landlord’s breach, their belongings have been damaged or destroyed, or if they have been inconvenienced and unable to use their home in the normal way.
it is also possible for disputes to arise between a landlord and tenant relating to breaches of other tenant and landlord covenants. See: breach of covenant.
Other disputes may relate to:
- Payment of rent and/or service charges
- Consents around sub-letting and assignment of a lease
- Issues around exercising a break clause