What Is The Diminution In Value Of A Property?
When a tenant vacates a property, it is their responsibility to ensure that they return it to the landlord in its original, pre-let condition.
Dilapidations represent what the potential exit costs might be if tenants have failed to ensure that they have repaired any faults in the building or reinstated any alterations they may have made prior to their exit. Where the contractual obligations have not been met, it is common for disputes to arise between the two parties following the service of a Schedule of Dilapidations.
Section 18 (1) of the Landlord and Tenant Act 1927 provides guidance on how the diminution in value of a landlord’s property should be handled. There are two parts (limbs) to Section 18 (1), the first limits the Landlord’s reversionary claim on the property should the value of the repairing works exceed the value difference between the property being in repair and not being in repair.
For example; a property is worth £100,000 in disrepair and would be worth £150,000 in repair. If the cost of the repairs exceeds the difference in value then the claim for repair is limited to £50,000 (£150,000 - £100,000 = £50,000). This does not include reinstatement costs but has in recent years included decoration costs. A specialist valuation surveyor would be responsible for calculating the property value to complete this assessment. It is an expensive process to go through so it is not usually invoked unless the claim is particularly contentious.
The second part of Section 18 is that the Landlord cannot claim a loss where future intentions for the property would supersede the works involved in the claim. For instance, a Landlord cannot claim costs for repairs and decorations if they intend to demolish the building. On a smaller scale, a Landlord cannot claim for repair /decoration costs to walls that they intend to remove as part of renovations to the property.
Exceptions To The Diminution in Value Of Property
Section 18 (1) can cause confusion with regards to what kind of rejuvenation work is included, however, it is crucial to note that Section 18 (1) only refers explicitly to repairs only. Reinstatement costs are to be negotiated outside of the diminution in value. Decorations used to be excluded from Section 18, however, in the case of Latimer v Carney [2006] the judge found that the repairing covenant was breached by the tenant not undertaking the redecorations prior to exiting the property.
How Does A Dilapidations Survey Help To Settle Disputes?
It is up to both the landlord and the tenant to ensure that they have settled the vacating costs correctly and that the limitations set by Section 18 diminution in value are taken into account appropriately. A Dilapidations Survey helps to provide independent advice with regards to the condition of a commercial property.
A Dilapidations Survey is performed by an independent chartered surveyor and involves a detailed report of the current condition of the property and the works necessary to restore the property to its pre-let condition.
An experienced building surveyor can guide you (Landlord or Tenant) through the legislation and procedures. They outline the work and cost involved in remedying faults or alterations to the subject property. They offer comprehensive negotiation services to ensure that formal legal claims are avoided. This saves both parties time and money.
Sillence Hurn has comprehensive experience in providing dilapidations consultancy. To learn more about our approach and get dilapidation advice please get in touch.
Disclaimer: Please note this article is for guidance purposes only and does not constitute legal advice.
