As the average lengths of leases are decreasing, dilapidations are becoming more of a frequent issue being faced by landlords and tenants.
When a commercial lease containing a repairing covenant comes to an end the landlord is entitled to:
(i) damages equal to the cost of the repairs that the tenant should have carried out; and
(ii) damages representing the rent the landlord should have received during the period needed to carry out those works (subject to a cap imposed by section 18(1) of the Landlord and Tenant Act 1927).
The interpretation of these principles often leads to a dispute over the liability for certain works and the correct assessment of the value of the works to be undertaken. It is often the case that:
1. not all of the works required to make the premises fit for re-letting fall within the scope of the repairing covenant contained in the lease meaning the tenant is often not liable for this category of repair; and
2. supersession may be relevant: if the repair works proposed by the landlord required for re-letting would make some of the repair works needed to comply with the repairing covenant redundant, the landlord will not suffer a loss if those works are not done.
The case of Sunlife Europe Properties Limited v. Tiger Aspect Holdings Ltd and another highlighted these two issues. In this case, the Court of Appeal approved the lower Court’s approach to dealing with dilapidations. The Court adopted a forensic approach to determine that not all of the works required to make the premises fit for re-letting fell within the scope of the repairing covenant. The judgment of the lower Court offers some helpful guidance on the Courts’ approach to mechanical and electrical apparatus. Unless there is wording in the lease to the contrary, mechanical and electrical apparatus (such as lifts or air conditioning) should be returned to the landlord in suitable working order.
It is unnecessary to replace such apparatus with brand new equipment. With regard to supersession, the case highlights that if a landlord has a firm and settled intention to redevelop the premises or to carry out structural alterations which would make the repair worthless, no damages are recoverable.
Often negotiations between landlord and tenant (or their representatives) will be successful without Court intervention. The Tiger case offers a helpful example of the approach adopted by the Courts to dilapidation disputes. The principles considered above can be adopted within negotiations or outside this framework, if a more formal approach to dispute resolution is required.
Michael Davies is an Associate in Stephen Scown LLP’s dispute resolution team in Exeter. He is an expert in property and land disputes and advises both landlords and tenants (commercial and residential) on a wide variety of matters. To contact Michael, please call 01392 210700 email solicitors@stephens-scown.co.uk or visit www.stephens-scown.co.uk