How Dilapidations losses are assessed?

When a lease is breached, the landlord must suffer a financial loss to make a claim. This loss can come from spending money on repairs or decreased property value due to the breach. To determine the extent of the loss, the costs of remedial work or a diminution valuation by a Registered Valuer can be used. However, it is essential to consult a dilapidations surveyor before paying large sums to the landlord, as completed works may not always have been necessary. Remember that a breach of lease should not go unchecked, and the landlord has the right to seek compensation for any financial losses incurred.

Reduction in the Value

When it comes to dilapidation claims, tenants should ensure that they only pay for damages they are responsible for and not for any damages the landlord is responsible for. It is essential to carefully review the lease covenant to determine what repairs and maintenance the tenant is responsible for. If the landlord fails to complete remedial work, waiting for a new tenant to take the property on similar terms can work in the tenant's favor, as the new tenant will carry the liability to put right any breaches of the lease. This means the landlord will not incur any loss, and the new tenant will be responsible for any necessary repairs at the end of their lease term. New tenants commonly let properties fall below the standard required by a full repairing and insuring lease, as their fit-out works do not depend on the entire building being in good repair.

Supersession

The landlord retains the right to claim against the former tenant for any necessary repairs resulting from their failure to comply with the lease. However, if the schedule of conditions does not precisely match the schedule of dilapidations, certain claim items may be excluded. A new tenant can negotiate a more extended rent-free period to address any outstanding dilapidations. To successfully claim an enhanced rent-free period, the landlord must provide evidence that it is directly related to the former tenant's failure to maintain the property and not due to any upgrades made by the new tenant. Therefore, the dilapidations surveyor must review all relevant documentation, including the Heads of Terms for the new lease, to ensure a successful claim. Some landlords' surveyors may request payment for unnecessary asbestos surveys, which are not required by law or the lease.

Some Common Claims

Testing services and fire installations are mandatory, and failure to do so violates safety regulations. While recent test certification may not be a lease requirement, tenants should be aware that if defects are found during testing, they will be liable for testing and remedying the defect. Landlords will only bear this cost if no defects are found during testing, which is not a lease requirement. VAT should not be included in dilapidation claims, and damages instead of VAT should be claimed if the building is not elected for VAT and the landlord has completed the necessary works. Compliance with safety regulations and proper financial practices is crucial for landlords and tenants.

 VAT Considerations

VAT must be paid on rent, so the landlord is entitled to reclaim VAT from HMRC. However, if the works have not been completed, any claim for VAT should exclude this element, either partially or entirely, as it cannot be proven whether the landlord will be required to pay VAT.