Should we be made to pay for dilapidations?

Ian Parker, now of the Three Kings in Sleaford Lincolnshire, asks if Punch acted legally when it deducted money from him to fund the dilapidations on his previous pub

We recently vacated our pubco-owned village pub after almost six years. It was our first venture into the trade. The original agreement was with the former Pubmaster estate and latterly Punch Taverns.

On taking the original agreement we spent substantial amounts of money on improving the interior and exterior areas and increased trade from approximately £78,000 in the first year to £232,000 in our fifth year.

During this period, the only monies spent by either pubco were on health and safety problems or running repairs.

When our original agreement came up for renewal in June 2004, our area manager told us that the original agreement would continue to roll-on. Therefore, we did not have a valid signed agreement with Punch Taverns.

When we vacated the premises, Punch Taverns elected to purchase the fixtures and fittings (F&F) on behalf of the new tenant and issued a schedule of dilapidations to us only one week before the change-over

Given that we had already spent substantial amounts of our own money on building a sound business, we were not prepared to carry out and fund the dilapidations.

But Punch Taverns deducted the sum of £6,570 from our F&F valuation to fund dilapidations, despite the fact that we declined to sign the settlement statement provided and completed by them (minus the dilapidations figure).

1. Are Punch within their legal rights to do this?

2. If not, how best do we fight our case?

3. If we fight the case, will it be financially viable?

David Morgan chartered surveyor, Cookseys DMP

Under the majority of tenancy agreements there is no responsibility for dilapidations but there is no consistency so you must check the exact details of the agreement.

If it is a lease agreement, it would seem that no Schedule of Condition was originally entered into between the tenant and Pubmaster - the original freeholders. It is essential that on entering into a new leasehold agreement, the state of repair of the property is clearly understood between parties as full repairing can be an extremely onerous obligation.

Most current leases require a new tenant to "put and keep in good and substantial repair". The magic word is "put," meaning that if the building is not in good condition now, it is an obligation of the lease to put it into sound and good condition throughout.

On the assumption that there is a full-repairing

obligation and assuming that the repairing clause states

a specific yearly cycle for internal and external repairs,

there is also the obligation to put into good repair at "the

determination of the interest". This means, when you assign your lease, the full weight of the repairing obligation immediately becomes actionable by the freeholder.

If it is a lease agreement, Punch is probably within its legal rights of enforcement of a full-repairing obligation and the £6,570 mentioned is not a substantial dilapidations order.

The time to challenge a dilapidations schedule is really when it is issued. It will carry with it standard builders rates and if you do the work yourself and challenge the validity of certain elements, you would be surprised how quickly the attendant obligations and costs can be substantially reduced.

Martin Roslyn, accountant, The Pub Accounting Company

I could ask all the questions in the world about why you would spend money on someone else's property but I advise you to let bygones be bygones and put this down to experience.

You may not have any legal recourse against the pubco

for the work that you completed, but morally there is a

different issue. I believe that there should be some room for negotiation with the pubco. Some questions that may help:

1. Do you have pictures of the unit before and after the work was completed?

2. Do you have copies of invoices for work done or can you obtain them?

3. Do you have copies of the area manager's visit sheets recording that he has recognised the amount of work and money that you have put in to bring the site up to scratch?

4. Ask for a complete breakdown of the schedule of

dilapidations showing what and where it is dilapidated, its original value and its current value.

I suggest you collate all of these into a presentable format, ask for a meeting with a director of the pubco and present your case. You may or may not want to recoup all of your expenditure, and you haven't mentioned the exact amount, so I cannot advise on that but I think you should explain that all you want is a refund of the dilapidation figure.

If they can't provide a complete breakdown with schedule, either employ an independent valuer to review their

figures or take them to the small-claims court for the full deduction - it will cost them an awful lot in legal fees and you can represent yourself. My guess is that they will then come to a satisfactory conclusion.

Graham Allman, property agent, GA-Select

The whole issue of dilapidations tends to be negotiated on an uneven playing field with each pubco having their own application criteria. Indeed, within pubcos, each BDM or property manager seems to have his/her own agenda, which fluctuates depending on the situation. But most pubcos take a very responsible and sensible approach with their

customers/lessees and are willing to reach an amicable agreement to settle a dispute before resorting to litigation.

Read the original Pubmaster agreement carefully to check the responsibility for repair, and confirm whether you were given notice at the point of renewal in June 2004 - if neither happened then you may be out of time within the Landlord & Tenant Act 1954.

Usually under a tenancy agreement there is no obligation on dilapidations but you must check the agreement. If it's a lease and was assigned under its original Pubmaster

agreement, the dilapidation clause may well be applicable and Punch is within its contractual rights to apply "delaps" even though you have not signed a Punch lease, as Pubmaster was taken over, along with your lease, by them.

You can apply to the courts for release from the

conditions; however, there is no guarantee of success and there will be substantial costs involved, win or lose. Whether or not the delaps are fair is another question and is a

question best answered by a surveyor. This, again, would cost money, as would consultation with a lawyer.

My best advice is to sit down with Punch and talk the problem through with them, presenting your case in a clear manner with the aim of reaching a pragmatic "win-win".

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Ian Parker's response

We're very grateful for the advice and it's good to get an overall view. I think the best way forward is for us to write to Punch outlining our case and try to get it resolved without getting the solicitors involved.

Of all three answers offered from the experts, I think it is Martin Roslyn's model we will follow most closely. He seems

to have hit the nail on the head for us. But it is worth seeing

the range of opinions.

I have actually had a couple of solicitors look at the situation but we have had trouble finding one with the correct area of expertise. You really need a specialist with these cases.

We are not too optimistic in getting it resolved. To be honest it may be something we have to put down to experience.