How retailers can best manage the risk of dilapidations
Richard Robinson, Associate Solicitor at Shulmans corporate solicitors (www.shulmans.co.uk), is a property litigator and specialist in the field of disputes relating to property disrepair.
Most retail units are occupied pursuant to a lease, usually requiring the tenant to keep the property in repair. This can prove costly if the tenant takes no steps to manage the risk of property disrepair, and simply vacates the retail unit at the expiry of the lease. Ultimately, the landlord may pursue a “dilapidations” claim for many thousands of pounds in damages.
What are “dilapidations”?
“Dilapidations” are claims for damages for an alleged failure on the part of the tenant to comply with the repairing (and other) covenants in a lease, which is usually pursued by landlords after tenants have vacated property at the end of a lease.
The landlord prepares a “schedule of dilapidations” which is served on the tenant. This may be followed by a period of negotiation and a settlement of the claim may be agreed. This simplistic approach can result in unnecessary and significant expenditure by tenants.
What should retailers do to actively manage the risk of dilapidations?
1) Forward Plan
This is the key to mitigating risk. This starts with a detailed analysis of what is required to deliver the property to the landlord in a lease compliant state. Someone needs to take ownership of the process of delivering the property back to the landlord, and should work with solicitors and other specialists to identify precisely what needs to be done to best reduce risk.
2) Do you need to undertake works of repair?
There are a number of possible outcomes to this process. Not all will involve the undertaking of works. It may be that a thorough analysis results in the conclusion that there is little risk: instead some preparation may be required prior to the end of the lease in order to lay the groundwork for defending any claim presented by the landlord.
3) Analyse the claim rather than haggle a deal
It is not unknown for tenants (and their advisers) to negotiate with landlords without anyone actually analysing whether there is a genuine claim for losses. Consequently, significant sums are needlessly paid out by tenants. Generally, planning and implementing a strategy to mitigate risk at least a year before lease expiry is prudent.
4) Get the right team in place
The risk of a dilapidations claim is best managed by a team of experts from various disciplines, brought together sooner rather than later. Managing the risk of a claim for damages may require input from any or all of the following: solicitor, building surveyor, quantity surveyor and valuation surveyor.
This may look like an expensive team, but the potential saving of thousands of pounds against often exaggerated claims by landlords can far outweigh the cost of expert advice.
5) Watch out for contingency fees
Quite often, landlords retain advisers to pursue such claims on the basis of “no win no fee” arrangements. This gives landlords’ advisers a direct incentive to claim as much as possible from the outgoing tenant. Something for tenants to bear in mind.
6) Interim Dilapidations Claims
Sometimes, landlords take action to enforce repairing obligations during the lease term. Tenants should react immediately if a schedule of dilapidations is served by taking expert advice. Unfortunately, tenants often consider that dilapidations are a matter that can be left until the end of the lease. By that time the Landlord may already have taken legitimate and expensive enforcement action and the best opportunity for mitigating the risk of a substantial claim may have been lost.