23rd July 2013

As the economy bounces along the bottom, there is a temptation for people to try and find innovative ways of making money. Ways which in a healthier economic climate might not be pursued.

A classic instance of this is dilapidations at the end of a commercial lease. If a lease has been in place for a long period of time or indeed if it has been renewed on a number of occasions it is very difficult for an outgoing tenant to put their hands on any evidence as to the original state of the building. This does sometimes lead to Commercial landlords identifying a long list of problems with the building which they claim are all the responsibility of the outgoing client. The sums involved can be considerable.

A case decided this year in the High Court (Technology and Construction Court) will in many cases assist the beleaguered and often stunned tenant.

The case is Sunlife Europe Properties Ltd v Tiger Aspect Holdings Ltd and Tiger Television Ltd – [2013] EWHC 463 (TCC). In this case the High Court set out the basic rules on dilapidations, some of which are set out below:

  1. A tenant is obliged to return the premises in good and tenantable condition but that does not mean that all fixtures and fittings have to be renewed
  2. The standard of the building must bear some relation to the standard of the building when it was originally taken over – of course this is where evidence may be lacking.
  3. Regarding fittings – for example – it is not unusual for the Central Heating boiler to be coming to the end of its useful life but there is no requirement to replace such a boiler with the latest and best on the market.
  4. There is great emphasis on commercial good sense and indeed acting reasonably. Of course the landlord has the right to get the building back in a usable state (given it was in a usable state when he first leased it) but he cannot expect the tenant to upgrade the building during the course of the lease.

In this case the landlords Sunlife submitted a claim to the tenant for dilapidations costed at over £2.5million. The Judge in the case awarded £1.3million.

It may be noted that the surveyors who prepare these schedules of dilapidations on behalf of landlords submit their bill on the basis of a percentage of their costings. A cynical person might assert that there is an incentive therefore for the surveyor to inflate or exaggerate the claim as much as they can. This judgement suggests Landlords should be cautious before embarking upon costly litigation based on their surveyor's report.