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Disrepair - Don't Leave it Too Late!

Napthens - March 11th 2013

Commercial Landlords know all too well that issues concerning tenant’s breaches of repairing covenant are a fertile ground for disputes. However, such issues usually bubble under the surface during the Lease term only to explode after the Lease has ended. At that stage, if the tenant has vacated, the Landlord will want to put the property into tenantable condition as soon as possible to attract a new Tenant. 

A Terminal Schedule of Dilapidations may be prepared and served by the landlord’s surveyor. A well advised tenant will respond and claim the benefit of Section 18 (1) of the Landlord and Tenant Act 1927 which caps the landlord’s damages at the diminution in value of the property as a result of the disrepairs. A potentially long running and costly dispute often then ensues.

However, much of this can often be avoided. It is very common in a Commercial Lease for there to be a covenant allowing a Landlord to enter onto property, to view the state and condition, to serve a written notice of any disrepairs or breaches of covenants to decorate, to require a tenant to carry out the works within usually a month or two failing which the Landlord is able to enter onto the property, carry out the works and recover the costs from the tenant as a debt (and sometimes “as rent” so that if it is not paid then the Landlord has equivalent powers to those where a tenant fails to pay rent e.g. distraint). In this way the restrictions on recovering damages mentioned above do not apply.

So called “Interim Schedules of Dilapidations” can therefore be a very effective tool for a Landlord to ensure that a tenant complies with its repairing and decorating obligations during the term of a Lease. Landlords must ensure that if they do enter to carry out the works they must be careful not to unduly interfere with the tenants’ business. A landlord should of course carry out financial checks upon the tenant to ensure that there are good prospects of being able to recover the expenditure incurred.

In practice I have seen real and substantial commercial benefits for landlords who are aware of these powers and substantial losses for those that aren’t or who realise too late (two cases which come to mind are where the tenants were Blockbuster and Woolworths!)