Helping you tackle dilapidations during lockdown
April 08, 2020
For those occupiers approaching the end of a lease and a move to a new property, these are challenging times. It is time to consider a new strategy if your lease is due to expire or you have a break coming up in the next 18 months..
Work has come to a standstill
Your building contractor may not be able to finish fitting out your new property in time for you to relocate before your lease expires. What about your dilapidations liability? How will you be able to resolve this?
Start by considering the lease terms and property in detail. With dilapidations the detail can make all the difference. If you’re not exercising an option to break it should be possible to agree a financial settlement of your dilapidations liabilities, allowing you to remain in occupation until the final day.
In order to have leverage in this negotiation with your landlord, there are time critical actions you should take. Firstly, seek expert advice.
You’re not able to relocate
There won’t be any automatic right to extend the lease term because occupation is prevented by a pandemic.
Is there no alternative to staying? You might already have rights for continued occupation under the Landlord and Tenant Act 1954. This will depend on the type of lease you have and the timely service of notices.
You could ask the landlord if they will agree to an extension, but is that the most economic option? You may, where possible, continue to ask your employees to work from home or consider a temporary move. Flexible office solutions could work as you would not be obliged to enter into a long-term commitment, particularly if you are exiting by means of a conditional break option. If extending the lease is the preferred route, you may find that landlords are more than likely to consider this in the current climate as they face the less appealing prospect of an empty building they can’t refurbish or re-let once you’ve gone.
What if I am stuck with the lease?
Break options usually come with conditions, so could present a bigger challenge. Typical break conditions include providing vacant possession or completing dilapidations work before the break date. If the conditions are not met the break isn’t effective and the lease continues. Your contractor may be entitled to claim ‘force majeure’ because it can’t complete the work, but break options are strictly upheld by the courts, and landlords are entitled to demand that the conditions are met.
Failing to satisfy these obligations sits with the tenant. The current lockdown cannot be relied on as a legal argument without first being tested through litigation or dispute resolution. Whether the tenant can break the lease successfully will depend on the nature of the conditions. However, if they are not met then it is likely that the lease will continue, unless the landlord is willing to waive legal rights.
Check your budget
The basis of determining the amount of damages owed to your landlord is dictated by the market for the property and what the landlord intends to do with it at lease expiry, while dilapidations liabilities come from the cost of remedying disrepair and carrying out the necessary reinstatement, t
Your landlord’s plans to redevelop or refurbish the property may now be postponed which can increase potential dilapidations liabilities significantly. Section 18 and value diminution assessments may be dramatically different for properties in certain markets. This degree of market volatility means dilapidations liabilities should be revisited as a priority because they’re unlikely to be the same as they were before the crisis began.
Please contact the Kirkby Diamond team and we’ll do all we can to help you meet the new challenges and navigate lease exits successfully.