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DILAPIDATIONS SHOULD REFLECT LANDLORDS’ ACTUAL LOSS

Posted on Nov 27, 2014 by Jane Ramsay  | Tags: dilapidations, property law, landlord rights, tenant rights  | 0 Comments

A landlord’s ability to recover a dilapidations payment from a tenant for repairs it may never actually carry out, has come under scrutiny by the Scottish Courts.
A recent decision by Lord Tyre in the Outer House of the Court of Session (@Sipp (Pension Trustees) v Insight Travel Services Limited ][2014] CSOH 137) has ruled that where a tenant failed to return the premises in the condition specified in the lease, the landlord was not entitled to receive the cash windfall that they were expecting.
In this case, the Court considered whether or not the landlord’s loss in the dilapidations claim was based on the assessed cost of repairs required to return the property to the condition specified in the lease, regardless of whether or not the landlord intended to carry out such repairs.
The court decided that the landlord was entitled to recover only its actual loss sustained as a result of  the breach of the repairing obligation and nothing for the repair works which were not actually to be carried out.
MBM Commercial LLP acted recently for tenants in a dilapidation negotiation where the landlord intended to convert the office premises back to residential use following the expiry of our clients’ lease. We argued that this had an impact on the actual loss that the landlord would suffer and should reduce the dilapidations claim against our clients. Lord Tyre’s approach clearly demonstrates that, as we successfully argued, the landlord’s intentions are relevant in assessing their actual loss which is all that the landlord should be entitled to recover from their tenant.
Tenants, in negotiating their dilapidations liability, are now more likely to insist upon proof that the work has been done or is to be done. The wording of the repairing and dilapidations clauses in leases needs to be carefully drafted and considered in light of this decision.
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