Repair –v- compensation for Disrepair (Part 2)
In this second of three instalments our commercial property partner Michael Higgin explains Schedules of Dilapidations and how forfeiture for disrepair might occur.
The types of schedules
Landlords will sometimes serve an “interim” schedule of dilapidations during the term of the lease. Most modern well-drafted leases provide that the landlord is able to recover its costs for preparing and serving such a schedule, whenever they produce it. Most modern well-drafted leases will also include rights of access for the landlord and its surveyors to enter the property to inspect, and to ascertain whether the tenant’s repairing obligations have been met and to prepare such a schedule. In leases where the lease was originally granted for more than seven years and there are at least three years left to run the tenant can defend the schedule by using the Leasehold Property (Repairs) Act 1938. The tenant would need to serve a counter-notice within 28 days of receiving such a schedule in order for the landlord’s claim to be suspended. The landlord can then only pursue the claim if it obtains a court order, so this procedure is only rarely done.
However, most well-drafted modern leases also contain a clause which allows the landlord after a period of notice, if the tenant does not do the works, to go into the property to carry out the repair works at its own cost, and then to recover that cost from the tenant (which is known, after the key case on this, as a “Jervis v Harris” clause). This right is rarely used, but it is something to be aware of as it is a powerful remedy for the landlord, if they are willing to spend their own money up-front in doing the works.
The landlord is also able to serve a schedule of dilapidations towards or at the end of the term of the lease and for up to six years afterwards (being the normal period for bringing an action for breach of contract). Many leases provide that the landlord can only recover its costs if it does so within a number of months (usually 3 – 6) of the end of the term of the lease. They can still serve a schedule later, but they would then need to bear themselves the cost of preparing the schedule.
This could be a whole separate note, but in short if there is a disrepair breach then the landlord can serve a “s.146 Notice” under the Law of Property Act 1925 of intention to forfeit (i.e. end) the lease if the breaches are not made good within a reasonable period of time. The length of that “reasonable” time will depend on how major are the required works. Sometimes landlords seek to specify how long that is, but often it is let in those general terms.
The tenant can expect to have to pay all of the costs of such a notice, under the usual ‘costs’ clause in a lease.
If the works are not done and the landlord takes possession, “relief from forfeiture” can be applied for from the courts. This is a discretionary equitable relief from the court, so it cannot be relied upon. The tenant must have acted in good faith (“come to the court with clean hands” is the traditional phrase), and it must be fair to the landlord for the court to grant relief: the tenant can expect have to make good all of the breach and pay all of the costs involved.
Part 3 deals with the conduct of dilapidations claims and whether the tenant may choose to do repair works or not (see related articles below).