When repairs become problematic

Dilapidations claims can be costly and need careful consideration Is the schedule of dilapidations justified? QuestionFollowing the expiry of my client’s tenancy, the former landlord served a schedule of dilapidations. Although we have tried to negotiate the schedule, the landlord is threatening to issue proceedings to seek damages for the disrepair. My client is keen to avoid litigation, but I consider that the landlord is not entitled to claim for many items in its schedule. How can my client protect its position? AnswerYour client should make a formal settlement offer to the landlord, preferably under CPR 36. This will help it to recover its costs in the event that the landlord recovers less than your client’s settlement offer. EXPLANATION A similar issue was considered in Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2009] EWHC 2014 (Ch); [2009] PLSCS 234. In that case, the landlord served a dilapidations schedule for around £416,000 and commenced court proceedings. The tenant believed that it had a defence to the claim, which was tried as a preliminary issue. However, its defence was unsuccessful and the Court of Appeal ordered it to pay the landlord’s costs. Matters were subsequently settled on terms that the tenant would pay around £1,070 to the landlord in respect of its dilapidations claim and that the court should determine the costs of the claim. In determining the costs, the court concluded that the claim had been “exaggerated” and ordered the landlord to pay the tenant’s costs of the claim other than those covered by the Court of Appeal’s order in respect of the preliminary issue. This decision shows that the courts are willing to award costs against a party that exaggerates its claim. However, you can assist your client’s position on costs – and put the landlord under pressure to settle the claim – if you make a sensible settlement offer. The offer will have particular weight if made under CPR 36 since this provides for significant financial penalties to be imposed where a party rejects a CPR 36 offer and fails to do better at trial. For example, the court could order the payment of indemnity costs and interest on costs at up to 10% above base rate. There is some debate as to whether the acceptance of a CPR 36 offer before proceedings have been commenced triggers the automatic costs liability under r 36.10 (which requires a defendant to pay a claimant’s costs until the date of acceptance of the offer). If your client is willing to pay towards the landlord’s costs of dealing with the dilapidations claim, it may be sensible to confirm this in the offer. However, to ensure that the offer complies with CPR 36, your letter should make it clear that the terms as to costs do not form part of the CPR 36 offer and are included only for the purposes of clarification. If your client is not prepared to contribute towards the landlord’s costs or wants to offer only a limited sum towards them, you can still make a settlement offer by way of a traditional Calderbank offer. Am I entitled to delay starting repair works? QuestionIn light of the current economic climate, I would prefer to wait until I have agreed a dilapidations settlement with my former tenant before carrying out the necessary repairs to the premises. I know that I can claim against my former tenant for loss of rent will this cover the time it takes to conclude our negotiations or obtain a determination from the court? AnswerA loss of rent claim should be made only for the period that is reasonably necessary to undertake the repairs the court will not permit a landlord to recover loss of rent for any period during which the works are delayed owing to a lack of finance. EXPLANATION Damages for breach of contract aim to restore the injured party to the position that it would have been in had the defaulting party complied with its obligations. These contractual principles will govern the claim against your former tenant for breaches of its repairing responsibilities. The court will therefore aim to redress the losses that have been caused by the tenant’s failure to return the premises in the condition required by the lease, including compensation for the rent that you will be unable to receive while the repairs are undertaken. Thus, a loss of rent claim should be made only for the period that is reasonably necessary to carry out the repairs; the court will not allow a landlord to recover loss of rent for any period during which repair works are delayed because of a lack of finance. As well as the duration of the works, the courts will usually allow a reasonable time for a landlord’s preparations in this regard, for example, preparing plans, putting the work to tender and instructing a builder. However, the time allowed for such preparations may be shorter if you had sufficient notice of the tenant’s intention to vacate. You should also bear in mind that your damages (including for loss of rent) will be restricted by section 18(1) of the Landlord and Tenant Act 1927 to the amount by which a hypothetical purchaser would reduce the price for the premises as a result of the disrepair. Any claim for loss of rent will require you to prove that you have suffered actual loss, in that you are unable to relet the premises because of the repairs required. Given the current economic climate, such a claim may be difficult where the premises could not have been relet even if returned in a good state of repair. Even without this obstacle, your loss of rent claim will be less straightforward to pursue if you seek to recover damages from your former tenant before you have carried out the necessary repairs. Emma Humphreys is a partner at Charles Russell LLP and Jonathan Klein is a barrister at Enterprise Chambers