Terminal Dilapidations Claims: A Useful Reminder

The recent High Court decision in Sunlife Europe Properties Limited v Tiger Aspect Holdings Limited & Another (2013) provides a useful reminder of some of the principles to be applied when assessing a tenant’s liability for dilapidations at the end of a lease.  The case concerned a central London property.  The tenant had not carried out works of repair and so the issue between landlord and tenant was all about the level of damages that the landlord was entitled to as a result of this.  The parties were significantly apart in their assessment of the claim.  The landlord claimed c£2.1m in damages whereas the tenant contended the level of damages was £240,000.  In assessing the level of the claim at c£1.4m the presiding judge made a number of observations when considering terminal dilapidations claims which are of general application to terminal dilapidation claims:

1.    The starting point is to consider whether, if the tenant hands back the premises up in good repair and condition would the landlord have been able to let or sell the building without any significant discount. If the answer is yes then compensation is assessed with reference to either the cost of putting the building back into the condition or the difference in the value of the building in its actual state and the state in which it ought to have been delivered up, whichever is the lower.

2.    If the answer to the initial question is no, the court would have to consider what work would be needed to put the premises into a condition that would enable it to be let at a fair market rent or sold at a fair market price. 

3.    A tenant is entitled to perform his covenants in the manner least onerous to him

4.    If the premises contain plant and machinery, a tenant is required to leave that plant and machinery in working order.  If plant or machinery is broken a tenant is only obliged to replace it on a like-for-like, or nearest equivalent, basis. He is not required to upgrade it in line with current standards;

5.    A landlord seeking the cost of repairs cannot recover a loss which he could reasonably have avoided, or the cost of remedial work which was disproportionate to the benefit obtained.

6.    The fact that a landlord had carried out more extensive work than was caused by the tenant's breach does not, of itself, prevent him from recovering the cost of the work that would have been necessary to remedy the breach.  This is not the same as the situation where a landlord will rip out or carry out work that would supersede the work of repair that a tenant would be expected to carry out, in which case the landlord would lose its right to recover the cost of the work necessary.

The case is a useful reminder that the landlord and tenant need to consider liabilities for dilapidations at the end of a lease in a proportionate and realistic manner and not stick steadfastly to the principle that the cost of carrying out repairs will equate to the level of the claim.  When assessing such claims the courts will have regard to the cost of the works, but only to the extent that those works result in a tangible increase to the value of the property in question.

A link to the judgment is here:            http://www.bailii.org/ew/cases/EWHC/TCC/2013/463.html
 
by Nitej Davda, Associate