Unraveling Dilapidations: 7 Steps for Handling End-of-Lease Obligations

Posted On 18 April 2024 by Sarah Gratton and Michael Sewell
Unraveling Dilapidations: 7 Steps for Handling End-of-Lease Obligations

How to deal with dilapidations at the end of a commercial lease

The Pre Action Protocol for damage claims relating to the physical state of commercial property at the end of the lease is simply know as ‘the Protocol’ and sets out a conduct as summarised below

Step 1

The landlord should send to the tenant a schedule which sets out what the Landlord considers to be the breaches of the tenancy, the works required to be done to remedy those breaches and, if relevant the landlord’s costings.  Breaches should be separated into relevant categories (repair, reinstatement, re decoration etc).   An example is contained within the Protocol at Appendix B and C.

Schedules should be sent within a reasonable time, which will vary from case to case but will generally be within 56 days after the termination of the tenancy.

The Schedule should be endorsed either by the landlord or, where it is prepared by a surveyor, by the landlords surveyor.  It should confirm that all of the works set out in the schedule are reasonably required to remedy the breaches, that full account has been taken of the landlord’s intentions for the property and, where endorsed by a surveyor that the costings are reasonable

A quantified Demand should also be served.  This sets out clearly all aspects of the dispute and substantiates the monetary sum sought.  It should not include items of work that are likely to be superseded by the landlord’s intentions for the property.  It should also confirm that the landlord and/or the landlords surveyor will attend a meeting or meetings.  It should be sent within the same timescale for sending a schedule and specify a date by which the tenant should respond (usually 56 days after sending the demand)

Step 2  The Response

This should usually be sent within 56 days of the landlord sending the quantified demand.  The tenant should respond using the schedule provided and the response should be set out in sufficient detail to enable the landlord to understand clearly the tenant’s views on each item.  It should be endorsed either by the tenant or where prepared by a surveyor, their surveyor.  The endorsement should confirm that the works detailed in the response are all that were reasonably required to remedy the breaches, any costs set out in the response are reasonably payable for such works and account has bene taken of what the tenant reasonably believes to be the landlords intentions for the property.

Step 3 Disclosure of Documents

Disclosure will generally be limited to the documents required to be disclosed with the quantified demand and the tenants response being invoices or detailed estimates for the works and any other costs claimed

Step 4 Negotiations

The parties are encouraged to conduct a without prejudice meeting before the tenant is required to respond to the quantified demand, usually within 28 days after the tenant sends the response.  The objective is for the parties to agree as many of the items in dispute as possible

Step 5 Alternative Dispute Resolution

The courts take the view that litigation should be a last resort and so parties should consider some form of alternative dispute resolution and try to agree what form to use.

Step 6 Quantification of Loss

Prior to any issue of proceedings the landlord should quantify its loss by providing a detailed breakdown of the issues and any consequential lost.  This should be based on a formal diminution valuation prepared by a valuer or an account of the actual expenditure

Step 7 A stock take

A review of the documents and evidence to see if proceedings can be avoided and if there are issues which can be agreed with a view to settlement.

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