By Philip Bowe, Managing Director of BIV Bowes
This is a cry I frequently hear, when tenants of commercial property are served with a Schedule of Dilapidations. You rent the property from somebody else, you pay them rent, then when it needs repair, they want you to pay for it! Even though it’s not your property, the landlord says you have to pay to put it into good repair.
So is that true? Well, in most cases, the answer is YES. There is a Law called the Law of Property Act 1925 and Section 146 of that Act says that for any breach of the lease covenants, a landlord can serve a notice requiring that the breach is rectified within “a reasonable time thereafter.” It is to enforce repair covenants in your lease that your landlord will most commonly serve you with such a notice. The first sting is that the landlord will need a surveyor (someone like me) to prepare the repair schedule and a solicitor to serve it on you. And you’re responsible for their costs as well.
The second sting is that the landlord may come along and insist the property is repaired and put back into good condition, even though it was a bomb site when you took over.
So what can you do about it? There are basically three things you can do to minimise the impact.
Firstly, and pretty obviously, keep the property in good condition. It won’t stop the notice being served, but as most surveyors charge for the notices by time spent on the case, the less they find, the less time they will take, the less it will cost. It’s common sense anyway.
Secondly, there is a cap on the amount of dilapidations a landlord can charge, called a section 18 valuation’. (This is section 18 of the Landlord and Tenant Act 1927). A landlord cannot claim costs that are more than the diminution in value of the property. For example, if the upper floors of a shop are in poor condition and worth say £5,000 per annum in that condition, but would be worth £7,000 per annum in good condition, the difference is clearly £2,000 pa. Were this to be capitalised at 8% say, this means the difference in Capital value would be £25,000. Even if repairs were to cost £40,000, then the landlord cannot claim more than this cap.
Lastly, think ahead! The antithesis to a Schedule of Dilapidations is a Schedule of Condition, instigated by the Tenant. If you are signing a new lease, get the landlord to agree to such a schedule before you sign the lease. If you are taking an assignment, have a surveyor undertake a survey to draw up a schedule and either have the outgoing tenant attend to the work, or make sure you are given payment (by whatever means) to undertake the work yourself.
So there you go. You thought all you had to do was pay the rent and the landlord would be sweet. Unfortunately not, some landlords (and if you’re in a pub this seems particularly prevalent), will want to see you recognising your repairing responsibilities and carry it to the n’th degree.