With shorter term leases, greater economic uncertainty, and many repairing issues “parked” in 2020 on account of the pandemic, dilapidations will be an increased issue for commercial landlords and tenants alike in 2021. Landlords are often best advised to take a proactive approach to asset management in terms of repair, rather than leaving this to the end of the lease term. In 2021 the balancing act will often be driven by whether or not the tenant can afford to meet its liabilities. Landlords’ Notices to Repair During the Lease Term (so-called “Jervis v Harris Notices”) are expected to be prominent in 2021.
It is now widely understood that, as a claim in debt, Section 18(1) Landlord & Tenant Act 1927 (diminution in value) and also the Leasehold Property (Repairs) Act 1938 (the need for the Court’s permission to bring a claim in damages if the lease is a fixed term of 7 years are more, with 3 or more years remaining) are not a concern for landlords claiming under a Notice to Repair. There are, however, still a number of important hoops and hurdles to consider. The following is a headline, 10-point, checklist for landlords, tenants and dilapidations advisors to consider:
- Is the property out of repair? Any landlord works that go beyond the scope of the tenant’s liability to repair are likely to mean the landlord is unable to recover some or all of the monies expended on the works.
- A landlord must ensure it stays within the strict ambit of the covenant. Otherwise the landlord could be liable for breaching the tenant’s entitlement to “quiet enjoyment”.
- A landlord will need to ensure the duration of the works, and also the cost, are reasonable. However a landlord does not necessarily need to accept the cheapest quote.
- A landlord should consider, and if possible agree, the timing of the works. For example, if the Notice to Repair requires the replacement of a roof, the tenant may be able to prove it is unreasonable for the works to be carried out during the winter period on account of any increased duration and disruption of the works.
- Could the works reasonably wait until the end of the lease? Or are the repairs urgent, and to what extent might further disrepair (and costs) arise if the disrepairs are not remedied until the lease expires?
- If the repairs are non-urgent, is the tenant willing to give a legal undertaking to do the repair works at the end of the lease? A tenant may then be able to prevent (and potentially injunct) the landlord’s access under the Notice to Repair.
- Are any third party consents required before the landlord embarks on the works? Consider for example the need for any listed building consent, or superior landlord’s consent. How might any third party consent impact on the contractual timeline for the tenant’s works set out in the lease? What is a reasonable period for the tenant’s compliance with the Notice to Repair?
- Consider the cost of the works, and any funding required by the landlord? Is the landlord willing and able to make an upfront financial commitment to do the works? Is the landlord prepared to issue court proceedings (with a sizeable court fee, £10,000 for a claim in debt exceeding £200,000, payable) if litigation is required? Do the terms of any rent deposit deed or other security (guarantors or previous tenants?) cover the cost of the works, and if so should any additional notice be served?
- A landlord should consider the tenant’s creditworthiness, and whether the monies expended on the repair works are likely to be recoverable. Interest incurred on any loan taken out by the landlord to fund the works may be recoverable. A tenant should therefore consider the potential savings (e.g. interest, supervision of works, choice of contractor etc) if the tenant carries out the repair works, rather than defaulting and running the risk of the landlord entering the property under the Notice To Repair and completing the works.
- Will completion of the repair works impact on any rent review (this is unlikely if the rent review clause assumes a state of repair), or affect the landlord’s ability to speedily re-let at the end of the lease?
Invariably each dilapidations claim will turn on its specific facts including the precise wording of the lease, the disrepairs and property concerned, the requisite works, and the landlord and tenant’s respective profiles and relationship. In relation to any Notice to Repair During the Lease Term, however, it will be dangerous and higher risk for any landlord or tenant which does not have a comprehensive and thought through strategy in place.