Insight
A Schedule of Dilapidations served at lease expiry rarely tells the full story. One of the most significant factors we see shift the value and viability of a claim is whether the landlord has already re-let the premises, or has a prospective letting in place, evidenced by agreed Heads of Terms. We have dealt with, and settled, numerous cases recently where this single fact has had a material impact on the claim, whether through significant reduction, reformulation, or the claim falling away almost entirely.
The Scenario
A tenant vacates at lease expiry having been served with a Schedule claiming the cost of extensive repair works. During inspection, it emerges the landlord has either already re-let the premises, or agreed Heads of Terms for a new letting, on FRI (Full Repairing & Insuring) or IRI (Internal Repairing & Insurance) terms. What matters most at this point is:
Each of these points goes directly to whether, and how much, loss the landlord has actually suffered.
Section 18(1) of the Landlord and Tenant Act 1927 caps recovery at the diminution in value of the landlord’s reversion, not the cost of the works claimed.
Where a letting has completed, or Heads of Terms are agreed, those terms are the best evidence of whether any diminution in value exists at all. A market rent achieved on ordinary terms points strongly towards no loss.
We routinely ask landlords to reformulate their claim on this basis, supported by valuation evidence, rather than simply standing behind the cost of works set out in the Schedule.
A critical distinction is whether the landlord has itself carried out, or is committed to carrying out, any of the dilapidations works in order to secure the new letting. This is quite different from the incoming tenant taking the space on as seen.
Where the landlord has undertaken works, or is contractually required to, this can crystallise a genuine loss against the former tenant, since the landlord has incurred (or will incur) real cost to make the premises lettable. We look closely at what works have actually been done, by whom, and why, before accepting or resisting a claim framed this way. It is not enough for a landlord to assert this; invoices, specifications and correspondence evidencing the works and their purpose should be requested and tested.
Where a landlord is required to carry out dilapidations works to make the premises fit for the incoming tenant, a further and more significant exposure can arise if those works delay the tenant taking occupation. In that scenario, the former tenant faces a claim not only for the cost of the works, but also for loss of rent covering the period the incoming tenant could not occupy while works were carried out.
This is a serious risk, but it should not be accepted at face value. A claim of this nature requires clear evidence that:
Landlords should be pressed for the underlying evidence, correspondence with the incoming tenant, the timeline between lease end and the works, and the agreed lease start or rent commencement date, before any such claim is accepted. Conversely, where a landlord can properly evidence this sequence, it is a claim that carries real weight, and we advise clients accordingly.
Where a rent-free period has been agreed or proposed specifically to allow the incoming tenant to fund works, this can already represent the landlord’s mechanism for addressing those costs. A separate claim against the former tenant for the same items risks double recovery. We ask landlords to explain precisely what any rent-free period is calculated to cover, and to reconcile this against the Schedule before any claim is pursued.
Where an incoming tenant takes on an FRI or IRI lease, they generally assume responsibility for the condition of the premises going forward. This can support an argument that the former tenant’s liability has been superseded, particularly for items amounting to improvement or updating for the new occupier rather than genuine make good. Where the letting remains at Heads of Terms stage only, we treat this argument with some caution, since terms can change before completion.
Where the incoming tenant takes the premises on ordinary market terms, no rent-free period tied to works, no reduction reflecting condition, and no schedule of condition, the former tenant’s position is considerably stronger. This suggests the landlord has suffered no diminution in value at all, and the Schedule may fall away or reduce substantially as a result.
Early and full disclosure of the letting position is essential.
Early and full disclosure of the letting position is essential. Where a landlord’s surveyor knows, at inspection, that a letting has completed or Heads of Terms are agreed, that terms include a reduced rent, rent-free period or schedule of condition, or that the landlord has undertaken or committed to works to facilitate the letting (including any resulting delay to occupation), this is information the former tenant is entitled to test.
Withholding it only prolongs negotiation on an incomplete picture, invites scrutiny of the claim once the full facts emerge, and risks costs consequences where a claim is later shown to have been pursued without proper regard to known facts.
What Landlord and Tenant's should be aware of?
Final thoughts
New and prospective lettings are increasingly common in dilapidations disputes, and they can fundamentally reshape a claim. We have seen this repeatedly in recent cases, whether through a reformulated diminution in value claim, a double recovery challenge, or works genuinely undertaken by the landlord that crystallise a real loss, sometimes extending to loss of rent where occupation is genuinely delayed. Understanding these distinctions, and insisting on early disclosure, is essential to reaching a fair, well evidenced outcome for both parties.
It’s important, in order for us to understand your requirements from the outset in order to give the best commercial building consultancy advice we can.
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