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Contact JMW today to discuss all matters relating to dilapidation claims, including both issuing and facing them. Call us today on 0345 872 6666.
It may come as news to some tenants that in most leases they will be under an obligation to return the property to the landlord in a good state of repair and decoration, notwithstanding the condition the property was in at the start of the lease.
Tenants who neglect to do this can find themselves with what is known as a dilapidations claim at the end of their lease term. Current tenants will find comfort knowing that in a dilapidations claim, no one can claim more in damages than they have lost both in statute - s18 (1) of the Landlord and Tenant Act 1927 - and at common law. This loss is expressed as the loss in value of the landlord's property and is commonly known as the "diminution in the value of the landlord's reversion".
The impact of the recession on valuing dilapidations
This article looks at the effect the recession has had on valuers / surveyors valuing dilapidations and the different factors they take into account when determining a dilapidations claim.
An example of the methods used by valuers assessing the landlord's alleged loss can be found in the case of Shortlands Investments Ltd v Cargill plc  08 EG 163. In this case, two formulas were used, "A" and "B". Formula A and B were compared, giving the diminution in value as the difference between the two. Valuation A is an initial market valuation of the premises at lease end, assuming that the tenant has not breached its repair and decorative repair covenants under the lease. Valuation B represents market value, with adjustments arising from the tenant's breaches that would survive a hypothetical purchaser's intentions for the premises at lease end.
In a strong market landlords may have chosen to demolish office premises or to seek a change of use to residential use, but values are such that now they choose to repair and decorate. In the current recession, valuers will have to consider the inevitable lowering of both capital and rental values following the weaker demand for commercial premises and make changes to the two valuations to reflect this. Valuation A will be lower in a recession than it would have been in a strong market but with the cost of repairs remaining the same during the recession. This results in a squeeze between valuation A and valuation B, leading to a lower diminution loss to the landlord. Landlords are therefore left in a situation whereby they are struggling to justify heavy dilapidation costs.
This has persuaded many tenants that the resulting lower values are such that the landlord may be unable to demonstrate that he has suffered any loss. Alternatively, the loss suffered might be sufficiently low that the tenant may decide not to return the premises in repair in the current market. As a result, landlords are serving more and more schedules of dilapidations and these are being vigorously contested by the parties.
As evidence of lower market rates comes to light and the more the effects of the recession are noticed by landlords and tenants, the better the position becomes for the tenant and the worse it is for the landlord.
If you are faced with a dilapidations claim or are considering issuing one and require assistance please contact a member of the JMW property team.