It is common, when a tenant signs a lease, that they will have instantly taken on an existing dilapidations liability; that liability can be substantial, and can increase further with time.
If you take on a dilapidations liability, you are responsible for putting the building into repair, for decorating the building, for making sure the building complies with legislation (be that planning, building control, electrical safety, gas safety, asbestos legislation, fire safety, etc), for reversing any changes you make to the property, for cleaning the property and for paying fees and costs when it comes to the property’s owner wanting to claim dilapidations from you.
You therefore become a property manager as well as a publican.
What does a dilapidations claim look like?
A property owner can make a dilapidations claim during a lease, but these claims – particularly if they are claiming for payment of damages – are notoriously difficult to execute successfully.
Normally, claims should only be made during the lease term if there is something significantly wrong or dangerous with the building. If the lease allows it, property owners do sometimes have a right to enter the premises to carry out repair works and to claim the cost of those works back from their tenants – but this is rarely invoked.
Claims made at the end of a lease are expected to follow the Ministry of Justice’s Dilapidations protocol. This sets out the courts’ expectations of a property owner and tenant.
Shortly before the end of a lease, a property owner may send a schedule of dilapidations to a tenant, potentially including a sum of money the property owner thinks they can claim as damages. One response is for the tenant to get on with it and to carry out the works identified in the schedule, to reduce the size of the dispute. However, quite often, this is impractical.
How to challenge a dilapidations claim
When a commercial property owner makes a dilapidations claim, it is normal for them to expect their tenant to respond to the schedule, indicating that they hold a different view.
Unfortunately, there are examples of property owners being wholly unreasonable in what they claim, and there are examples of tenants inappropriately denying liability.
There are some standard areas where claims can be challenged.
An obligation to repair does not mean that every tiny defect at the property needs to be remedied. If the property was old and in a less sought-after location, the standard of repair to be applied would be less-onerous than a lease of a pub that was new and in, say, central London at the start of the lease term. Property owners will often ask for perfection when it is not appropriate to do so.
Property owners will often ask a tenant to prove they have complied with statute. Unless the lease specifically states the tenant is obliged to provide this information, property owners should be reminded that it is up to them to demonstrate non-compliance, rather than for a tenant to prove compliance.
Property owners often ask for alterations to be reinstated. Sometimes, the tenant does not have an obligation to do so because the alteration took place before the start of the lease term. Sometimes, the alteration adds value to the premises and so it would be unreasonable to ask for its reinstatement. Reasonableness is a legal test for this sort of claim.
The costs the property owner attributes to claimed works can sometimes appear to be excessive. If so, there is nothing to stop a tenant from obtaining a quotation for the works to demonstrate how much it would actually cost.
If, when the lease ends, the property owner intends to carry out substantial changes to the building, this can impact on what they should be claiming.
Moreover, if a new tenant agrees to a new lease and takes on the liability at no cost to the property owner then the outgoing tenant can argue that no loss has been caused by the breaches.
The most important lesson is to be aware of the liability you are taking on before you sign the lease. Get a survey.