Dilapidations claims are a significant financial risk for commercial tenants, particularly in Westminster's premium office market where rents and reinstatement costs are among the highest in the country. A terminal dilapidations claim on a W1 or SW1 office can run to hundreds of thousands of pounds, making early engagement with the process essential for any tenant approaching lease expiry.
Dilapidations is the term used to describe the breaches of a tenant's repairing, decorating and reinstatement obligations under a commercial lease. At the end of the lease term, the landlord (or their surveyor) prepares a schedule of dilapidations listing all alleged breaches and the cost of remedying them. The tenant is then expected to either carry out the works or negotiate a financial settlement.
In Westminster, the typical dilapidations claim covers three categories of obligation: repair (maintaining the premises in the condition required by the lease), decoration (repainting and redecorating to the standard and at the intervals specified in the lease), and reinstatement (removing tenant's alterations and restoring the premises to their original layout and specification). The reinstatement element is frequently the most expensive, particularly where the tenant has carried out significant fit-out works.
Westminster's commercial property market has several characteristics that affect dilapidations. Rents are high, which means the diminution in value of the landlord's reversion can support substantial claims. Many buildings are listed or in conservation areas, increasing the cost of repair and reinstatement works. Landlords frequently refurbish between lettings to maximise rental value, which can provide tenants with a Section 18 defence. Access for contractors can be restricted in central London, adding to costs. Understanding these local factors is essential for effective negotiation.
We provide dilapidations advice across Westminster for both landlords and tenants, with detailed knowledge of the local property market and building stock.
Section 18(1) of the Landlord and Tenant Act 1927 caps the landlord's damages at the diminution in value caused by the breaches. If the landlord intends to demolish, refurbish or substantially alter the premises after the lease ends, the dilapidations claim may be reduced or extinguished entirely. In Westminster, where landlords frequently carry out Cat A refurbishments between lettings, this defence can substantially reduce the tenant's liability.
If the lease was taken on with a schedule of condition, the tenant's repairing obligation is limited to the condition recorded in the schedule. This can be a powerful defence, particularly in older Westminster buildings where some disrepair pre-dates the tenancy. The schedule should be carefully reviewed alongside the landlord's dilapidations claim to identify items that fall outside the tenant's obligation.
The precise wording of the repairing, decorating and reinstatement covenants determines the scope of the tenant's obligation. Not all leases are the same, and careful interpretation is needed. For example, a covenant to keep in ‘good and tenantable repair’ has a different scope from a covenant to keep in ‘good and substantial repair and condition’. Surplus items in the landlord's schedule should be challenged and removed.
If the landlord intends to carry out works that would supersede the items claimed in the dilapidations schedule, those items cannot form the basis of a valid claim. For example, if the landlord plans to replace the entire mechanical and electrical installation, claimed repairs to the existing M&E system are superseded. In Westminster's competitive office market, landlords regularly invest in upgrading premises between lettings, and the supersession argument is frequently relevant.
The most effective dilapidations strategy begins 18 to 24 months before lease expiry. At this stage, the tenant should commission a pre-dilapidations assessment to understand the likely scope and cost of the claim. This assessment reviews the lease obligations, inspects the property and provides an estimate of the potential liability. Armed with this information, the tenant can make informed decisions about whether to carry out works, negotiate a settlement or deploy specific defences.
When the landlord serves the terminal schedule of dilapidations, the tenant should instruct a dilapidations surveyor to prepare a formal response (sometimes called a Scott Schedule or counter-schedule). This document goes through each item in the landlord's schedule, accepting or challenging it with reasons. Items may be challenged on grounds including: the item is not the tenant's obligation under the lease, the cost is excessive, the work is superseded by the landlord's intended refurbishment, or the item was in the same condition at the start of the lease.
Most dilapidations claims in Westminster settle through negotiation between the respective surveyors, without the need for litigation. The negotiation is informed by the schedule, the response, any diminution in value evidence and the commercial reality of the landlord's post-lease intentions. A well-prepared response supported by clear evidence typically results in a settlement significantly below the landlord's opening claim. Our experience of Westminster dilapidations matters allows us to advise on realistic settlement ranges from the outset.
Ideally 18 to 24 months before lease expiry. This allows time to understand your obligations, commission a pre-dilapidations assessment, budget for any works or settlement, and negotiate with the landlord from a position of knowledge. Leaving it until the final months significantly weakens your negotiating position and may result in a larger financial liability.
No. Section 18(1) of the Landlord and Tenant Act 1927 caps the landlord's damages at the diminution in value of the reversion caused by the tenant's breaches. If the landlord intends to redevelop or substantially refurbish after the lease ends, the claim may be significantly reduced. In Westminster, where many landlords carry out refurbishments between lettings, this defence can substantially reduce or even extinguish the tenant's liability.
A terminal schedule is a document prepared by the landlord's surveyor after the lease has expired (or shortly before), listing all alleged breaches of the tenant's repairing, decorating and reinstatement obligations. It forms the basis of the landlord's financial claim. The schedule should comply with the RICS Dilapidations guidance note and the Pre-Action Protocol. The tenant should instruct a surveyor to prepare a formal response challenging any items that are excessive, outside the lease obligation or superseded.
It depends on the circumstances. Carrying out works gives you control over costs and ensures the property is returned in the required condition. However, if the landlord plans to refurbish or market conditions mean the space will be substantially altered, a financial settlement may be more cost-effective. A dilapidations surveyor can advise on the most appropriate strategy based on the lease terms, property condition and the landlord's likely intentions.
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