Dilapidations: Losing Touch with Loss of Rent Claims
Most, if not all, terminal schedules of dilapidations will include a section for consequential losses, where one such consequential claim will be for loss of rent, rates and service charge – usually stated as “TBA”.
In our experience however when the loss of rent claim is finalised set out as a figure, it is either ignored by both sides or has very little impact on the final settlement figure. To a degree this is to be expected, as normal commercial tactics suggests that claims are set at a certain level with the expectation that there is sufficient wriggle room to allow for settlement at a lower, but still acceptable figure.
Against the backdrop of COVID, especially in relation to the impact it has had on retail and leisure space, is this still the case or is the position becoming clearer when it comes to loss of rent claims?
The principal factor is simple and easily stated – the remedial works procured by the landlord must, on the balance of probabilities, have actually prevented the re-letting of the premises during the contract period for those works, and so has caused the loss claimed. Taken at face value then where a tenant is not actually lined up to take a lease during the contract period any claim for loss of rent is likely to be a difficult one to successfully pursue in terms of causation.
If the market does not support the claim, with good, detailed and compelling, contemporaneous agency evidence on the state of the market at the end of the Lease, the claim will likely fail. One way around this might be to offer a rent-free inducement to a new tenant specifically based around the remedy of certain items of disrepair. However, this still depends on there being a tenant in the market to agree to those terms. If the advice is that until the remedial works are completed there will be no market for the premises, because prospective tenants will not be able to see beyond the dilapidations, a claim for loss of rent would still be possible but this then comes back to other available market evidence to support the loss of rent claim.
So if the market is depressed, or if where otherwise, on the facts, there is no reason to suppose that the premises would have been re-let any earlier even if they had been yielded up in repair, the claim for loss of rent will generally fail.
Another problem with claims for loss of rent is that the claim is generally limited to the time it would reasonably take to carry out and complete the works. This can include a consideration of all manner of factors, and could be adversely impacted where the Landlord carries out a refurbishment scheme which includes additional works that the outgoing tenant can never be liable for, or perhaps a lack of planning and preparation for the works prior to the end of the Lease. All good feeding ground for cross examination if the matter ever reached trial.
So, it has always been the case that loss of rent claims are difficult claims to bring, and perhaps even the cost of pursuing the claim could outweigh the loss of rent claim itself. In today’s changing and uncertain market, the trend of including loss of rent claims more for the purposes of giving it away as part of the settlement negotiation is likely to continue. It may be that the negotiating value of the loss of rent claim will be even more discounted now, than it was before March 2020. This is especially where the Landlord will know that if it litigates the loss of rent claim as part of a wider dilapidations claim and loses on that issue but succeeds overall, the Court can still make a costs order against the Landlord in relation to the loss of rent claim or make no order for costs.
Will there be any new case law in the coming months that will shine on a light on this subject – this has to be unlikely given that roughly speaking 80% of dilapidations claims are settled even before solicitors are engaged. As such it is highly likely that Loss of rent “TBA” will remain a very apt description of this type of claim.