Dilapidations are items of disrepair or defects which tenants are required to rectify or pay to have remedied under repairing and decorating covenants contained in the lease.

At the end of a lease, a landlord may be able to claim damages from its tenant for losses arising from the tenant’s breach of its repairing covenants (known as a terminal dilapidations claim).

The Pre- Action Protocol for Claims to Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy (the ‘Dilapidations Protocol’) applies to such claims where they relate to commercial property situated in England and Wales. The Protocol must be followed before the landlord can issue a claim for terminal dilapidations.

The Protocol encourages early and full exchange of information in order to encourage parties to settle a dispute rather than litigating it.

The Protocol sets out the steps that both the landlord and the tenant should take in relation to terminal dilapidations claims and the timetable within which these steps should be carried out.

The keys steps are as follows;

A Schedule for dilapidations should be prepared by the landlord within a reasonable time not more than 56 days from the end of the lease (a schedule may be prepared and served before the expiry of the lease).  The Schedule must be in the format set out in the Protocol and endorsed either by the landlord or the landlord’s surveyor to confirm that in their opinion the works set out are reasonably required to remedy the breaches, that full account has been taken of the landlord’s intentions for the property and the costings are reasonable.

The landlord should also send a Quantified Demand which sets out a calculation of the damages claimed. Losses should be fully quantified by either an invoice or a detailed estimate and/or a diminution valuation. The landlord can recover the reasonable cost of undertaking the works plus loss of rent including service charge and rates for the period until the works have been completed.  However, the amount claimed will be subject to a cap in accordance with Section 18 of the Landlord & Tenant Act 1927 which provides that damages are limited to the diminution in the value of the landlord’s reversion caused by the breach.  Damages will also be limited or possibly not recoverable at all where it can be shown that the property is to be either demolished or where significant structural alterations are to be carried out which render the repairs pointless at the end of, or shortly after, the end of the term.

The tenant should be given a reasonable time to respond (which is usually 56 days). The response should be set out in sufficient detail to enable the landlord to clearly understand the tenant’s views on each item.

The landlord and tenant (and surveyors) are then encouraged to meet before the tenant is required to respond to the Quantified Demand. Meetings are on a without-prejudice basis and the Protocol encourages the parties to seek to agree as many of the items in dispute as possible.

If the Tenant relies on a diminution defence there is an obligation to disclose this and to provide a diminution valuation to the Landlord, usually within 56 days of receipt of the Quantified Demand.

Only if matters aren’t resolved in accordance with the Protocol, should the parties consider legal action.

The Protocol is in place to encourage settlement of dilapidations disputes. However, market conditions and buoyancy of the letting market may determine how a landlord deals with dilapidations.  If the market is good, the landlord may be minded to quickly settle a claim for terminal dilapidations because it can re-let the premises.  If the market is poor, then the landlord may be more likely to deal with the process carefully and maximise its claim.