How to Minimise Risk of Disputes in Relation to Dilapidations

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Created: Friday, April 05 2019 15:21

A Lease will often place a positive obligation on a tenant to hand back or ‘yield up’ vacant possession of the property at the expiration of the term of the Lease, having restored the property to the condition it was in at the commencement of the term. In some cases, the property must be yielded up to the landlord in good condition irrespective of its condition at the commencement of the term of the Lease.

Typically, where a tenant is in breach of a covenant to repair under the Lease, the landlord will serve a schedule of dilapidations requiring the tenant to carry out various works to the property. This may be done during the tenancy or on its termination. As repairs can potentially involve significant costs, the assessment of dilapidations can be a source of dispute, particularly in the case of longer occupational Leases that have ended or are about to end.

To minimise the risk of a dispute and to protect their position in the event of a dispute arising, a tenant should agree a condition report at the outset of the Lease. This is particularly important where a property comprises an old building. The parties can agree a condition report at the commencement of the Lease and append it to the Lease, so that it forms part of the agreement.

The parties may agree that the tenant’s repairing obligation is limited to preserving the state of repair of the property, as reflected in the condition report. The condition report can then be referred to in the event of a disagreement between the parties as to the extent of their respective repair and/or reinstatement obligations.

The condition report should contain a detailed description of the condition and layout of the property, and ideally include contemporaneous maps, drawings and photographs of the property.

Where there is disagreement over a schedule of dilapidations, the parties should first check the Lease covenants in respect of repair, reinstatement and yield up. As a Lease is typically drafted by a landlord, the Irish courts are likely to interpret any ambiguity in favour of the tenant, rather than the landlord.

The tenant should consider the issue of dilapidations at an early stage so that it has the option to (i) carry out the required works or (ii) negotiate a dilapidations payment with the landlord. With regard to negotiating a dilapidations payment with the landlord, generally, the landlord will engage a surveyor to identify the areas of repair that are covered by the tenant’s obligations and the cost of these repairs. These will then be included in the schedule of dilapidations.

The tenant may engage their own surveyor and put forward an alternative list of repairs and their associated cost. In the event that the landlord brings a claim for damages, both the landlord’s and tenant’s view on the cost of repairs can be compiled into a composite schedule for the benefit of the court.

It is advisable that a detailed condition report is agreed at the outset of the Lease, and appended to the Lease, to limit the tenant’s repair obligations so that it will not be obliged to yield up the property in any better condition than at the term commencement. Also, the tenant should ensure that it complies with its repairing obligations as it arises, to avoid an issue arising at termination.