#Dilapidations – 6 Available Options!

“In Q1 2020 our Dilapidations Team successfully negotiated a large reduction in the original landlords claim of a prime retail shop on Oxford Street, London W1.  A great result for our client, an International Luxury Italian bag Retailer, in these very testing and difficult times – COVID-19.” 

“PRE possesses a range of technical experience and skills giving you the client proactive best value.  We are Nationwide, Mobile & Fast – A big well done to everyone involved in the negotiations”


1. What options are available to a landlords if tenants default on paying their rent?

A landlord will usually have the option to forfeit the lease if rent remains unpaid for a certain period. However, in many cases it will often not be in the landlord’s interest to do so as they may not be able to quickly re-let the premises to a new tenant (especially when other commercial tenants are likely to be under the same strain). Therefore, rather than receiving no income from an unoccupied property, a rent suspension or reduction may be preferable. A potential rent concession may be for the frequency of rent payments to be varied or for rent to be paid based on a percentage of turnover.


2. What Protection can tenants receive?

The government has recognised that many landlords and tenants are making voluntary arrangements to preserve tenancies affected by COVID-19, but that more legislative protection is needed for businesses struggling with cashflow and concerned about eviction. These protective measures have been added to the Coronavirus Act 2020 which came into force on Wednesday 25 March.

In effect, the measures will provide that:

  1. A landlord is unable to exercise a right of re-entry or forfeiture (termination) of a tenancy for non-payment of rent from the day after the Coronavirus Act comes into force (26 March) until 30 June 2020 (the ‘relevant period’). The relevant period may be extended by the Secretary of State. ‘Rent’ includes any sum a tenant is liable to pay under a business tenancy, including insurance rent and service charge.
  2. For existing litigation based on forfeiture for rent arrears, a tenant cannot be evicted until after the end of the relevant period (currently 30 June 2020).
  3. Failure to pay the rent during the relevant period cannot be treated by the landlord as persistent delay in paying rent.


3. The potential problem with Landlord Dilapidation claims

Dilapidation claims stem from the way a tenant uses a property. Should the tenant choose to alter the property, as many retail, industrial and office occupiers do, they pledge in their lease to return the property in the same condition that it was given. If a landlord does not feel that the property is being kept in a suitable condition, or if the property is not returned in adequate condition at the end of a lease, they can undertake remedial works themselves, and charge the cost back to the tenant.

Landlords rely on the ability to make dilapidation claims to put their properties back into a lettable state and maintain the infrastructure and fabric of assets. The most diligent of landlords will have worked in estimates and forecasts for likely claims on each of their assets as part of their budgets and financial planning. One of the biggest long-term financial dangers for them is, therefore, multiple occupiers exiting a space en masse in financial difficulty, leaving landlords with a diminished ability to claim for dilapidations. This could lead to gaping holes in their finances, running into the multi-millions across portfolios.


4. How Landlords can reduce their exposure

While the risk of occupiers closing is not something that can be controlled, there are a number of measures that landlords can take to try to minimise risks during this difficult time. In order to keep tenants that survive for the long term, landlords must be willing to work with them, without sacrificing the need to maintain the value of their assets. There is a real need, now more than ever, to inject some humanity into this situation, to mitigate the effects of COVID-19 on businesses.


5. Lease monitoring

Landlords should examine their tenants’ leases carefully. This is especially important for landlords with large portfolios – it is easy to let things slip through the cracks.

One of the most common (and costly) culprits is notice periods. Leases generally require tenants to remove alterations, and landlords must often provide notice to do so within a prescribed time frame. Failure to provide notice could result in the landlord missing its window for reinstatement claims. If lease renewal negotiations are ongoing, it is key to accompany the formal notice with a well-considered letter explaining why it is necessary to serve notice in this manner. This maintains relationships while also protecting the landlord’s position.


6. Break clauses

A break will often be conditional on providing vacant possession or, in some cases, complying with covenants in the lease. With the current ability to undertake works significantly hampered by government-imposed restrictions, and much of construction grinding to a halt, how will tenants comply? In a significant number of cases, it is expected that they won’t, but it is yet to be seen if landlords will seek to frustrate break clauses on this basis. Careful consideration and legal input should be obtained as courts may potentially take a dim view of a landlord’s actions depending on the particular circumstances. A short-term lease extension may be a feasible alternative.


“Should you require further information regarding this article or are a Landlord/Tenant who would like dilapidations advice, such as lease liabilities relating to repairing, decorating, and creating or removing alterations and additions, please do contact one of our  specialists who can guide you through what can be a complex process”

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