A tenant’s liability for dilapidations is limited by Section 18 of the Landlord and Tenant Act, 1927, and more generally by common law. If an occupier decides not to carry out works to remedy dilapidations, there are limits on what the landlord can recover from the occupier by way of dilapidations liability after the end of the lease term.
There are two aspects of the Act that have the potential to reduce a tenant’s dilapidations payments:
- No repair costs can be recovered by the landlord if at, or shortly after, termination of the tenancy the building will be structurally altered in a way that would render the repairs valueless or the building is to be pulled down
- The value of repair costs claimed by the landlord shall not exceed the amount by which the value of the landlord’s interest in the premises has been diminished, or reduced, by them being in disrepair
Recent cases point to the landlord’s loss being limited to diminution in its retained interest for all breaches not merely repair.
Calculating the cost of disrepair
To calculate the landlord’s loss as a result of disrepair or other breaches, a diminution valuation is required. This quantifies the difference between the value of the property assuming that the tenant has complied with its obligations and one reflecting the actual condition in which the property has been left.
This is notoriously difficult to do because the actual valuation will depend on the circumstances and the market for the premises including such factors as: the condition and specification of the building, its location, future likely uses and the amount of similar space available in the vicinity. For example, in a difficult property market, if the costs of compliance total £100,000 but the difference in value between the two valuations is only £50,000, the claim by the landlord would be limited to £50,000.
Where a building is set to be redeveloped or undergo a change of use, the extent of the redevelopment may limit, or remove a tenant’s liability for dilapidations.
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