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Dilapidations Explained: What Commercial Tenants and Landlords Need to Know Before Lease Expiry

Article summary:

  • Dilapidations claims arise from a tenant’s repairing, redecorating and reinstatement obligations under a commercial lease, and can run into tens of thousands of pounds if left unmanaged
  • The Dilapidations Protocol sets out a formal process — schedules of dilapidations, quantified demands and responses — that both landlords and tenants must follow before litigation
  • Landlords are limited in what they can recover by section 18(1) of the Landlord and Tenant Act 1927, which caps damages at the diminution in the property’s value
  • Early planning, clear lease drafting and a proactive approach to interim and terminal schedules can significantly reduce dispute risk and cost for both sides

Dilapidations are one of the most common — and most costly — sources of dispute at the end of a commercial lease. This article explains what dilapidations are, how the claims process works, the legal limits on what landlords can recover, and the practical steps both landlords and tenants should take well before a lease comes to an end.

What are dilapidations?

‘Dilapidations’ refers to breaches of a tenant’s repairing, decorating, and reinstatement obligations set out in the repairing covenants of a commercial lease. Most commercial leases require the tenant to keep the premises in good repair throughout the term and to hand them back in a specified condition, often including removing any alterations and reinstating the original layout.

When a tenant fails to meet these obligations, the landlord can bring a dilapidations claim seeking either the cost of the outstanding works or damages reflecting the loss in value to the property. These claims typically surface at two points: during the lease term, through an interim schedule, and at or near lease expiry, through a terminal schedule.

Disputes often arise because leases are drafted broadly, and tenants and landlords disagree over how much of the building’s condition at expiry is genuinely the tenant’s responsibility, as opposed to fair wear and tear or matters that predate the tenancy. Getting this distinction right is central to any negotiating a commercial lease exercise from the outset.

Interim versus terminal schedules

An interim schedule of dilapidations can be served by a landlord at any point during the lease term, usually where there are concerns about the property’s condition or where a landlord wants to protect the value of its investment ahead of a sale or refinancing. This gives the tenant an opportunity to carry out remedial works before matters escalate, and can prevent a much larger bill accumulating by the time the lease ends.

A terminal schedule is served at or shortly after the end of the lease and sets out the landlord’s case on all outstanding repair, redecoration and reinstatement items. This is usually the trigger for a formal dilapidations claim if the tenant disputes the scope or cost of the works alleged.

Tenants who receive either type of schedule should not simply pay up or ignore it. Instructing a surveyor and solicitor promptly to review the lease terms, the condition of the property at the start of the term (if a schedule of condition exists), and the reasonableness of the landlord’s claim is essential to managing exposure.

The Dilapidations Protocol

Dilapidations disputes in England and Wales are governed by the Property Litigation Association’s Dilapidations Protocol, which both parties are expected to follow before issuing court proceedings. The Protocol sets out a structured exchange: the landlord serves a quantified schedule of dilapidations along with a quantified demand, and the tenant must respond within a specified period, typically 56 days, setting out which items are accepted, disputed, or require further information.

Failure to follow the Protocol can have costs consequences later on, even if a party ultimately succeeds in litigation, because courts expect parties to engage constructively and avoid unnecessary proceedings. This makes early, well-advised engagement with the Protocol process valuable for both landlords seeking to recover costs and tenants looking to limit their liability.

Where the parties cannot agree following the Protocol exchange, dilapidations disputes frequently proceed to alternative dispute resolution, such as mediation, before reaching court, reflecting the wider civil court delays landlords and tenants can otherwise expect if a claim is issued.

Limits on what landlords can recover

A common misconception is that a landlord can simply recover the full cost of the repair works set out in a schedule of dilapidations. In practice, section 18(1) of the Landlord and Tenant Act 1927 caps a landlord’s damages at the amount by which the value of the landlord’s interest in the property has been diminished by the tenant’s breach.

This means that if a landlord intends to demolish or substantially redevelop the property at lease end regardless of its condition, or if the property’s value is unaffected by the disrepair, the landlord may recover little or nothing under section 18(1), even where the cost of the works themselves would be significant. Landlords should therefore obtain early valuation evidence to support any claim, while tenants should always test a dilapidations demand against this statutory cap before agreeing to pay.

Landlords are also unable to recover for want of repair if they intend to carry out works that would in any event render the alleged disrepair irrelevant, such as a full refurbishment or change of use. This is a frequent area of dispute and one where specialist advice can materially change the outcome.

Practical steps for landlords and tenants

Landlords looking to protect their position should keep clear records of the property’s condition at the start of the term, consider interim schedules where appropriate, and instruct a building surveyor early to prepare a well-evidenced terminal schedule. Tenants, meanwhile, should review their repairing obligations well before the break date or expiry, budget for likely dilapidations liability, and consider whether a schedule of condition agreed at the outset of the lease can help limit exposure.

Both parties benefit from addressing dilapidations as part of wider lease negotiations, including break clauses, reinstatement obligations and any restrictive covenants on commercial property that may affect how the premises can be used or altered. Addressing these issues at heads of terms stage, rather than waiting until expiry, is consistently the most cost-effective approach.

Final words

Dilapidations claims can involve substantial sums and complex legal and valuation arguments, but with early planning and clear advice, both landlords and tenants can manage their risk effectively. Landlords benefit from proactive schedules, sound valuation evidence and a clear understanding of the section 18(1) cap, while tenants benefit from reviewing their obligations well ahead of expiry and engaging properly with the Dilapidations Protocol.

Cocks Lloyd’s Commercial Property Solicitors in Nuneaton regularly advise landlords, tenants, developers and investors across Warwickshire and the wider Midlands on dilapidations claims, lease negotiations and property disputes, working alongside experienced surveyors to achieve practical, cost-effective outcomes.

FAQs: Dilapidations in commercial leases

What counts as dilapidations under a commercial lease?

Dilapidations cover breaches of a tenant’s repairing, decorating and reinstatement obligations, including disrepair to the structure, fixtures and fittings, and failure to remove alterations or restore the property to its original layout at lease end.

How much can a landlord claim for dilapidations?

A landlord’s recovery is capped under section 18(1) of the Landlord and Tenant Act 1927 at the diminution in the value of the landlord’s interest caused by the disrepair, which may be significantly less than the cost of carrying out the repair works.

What is the Dilapidations Protocol and do I have to follow it?

The Dilapidations Protocol is the recognised pre-action procedure for dilapidations disputes, requiring a quantified schedule and demand from the landlord and a response from the tenant within a set timeframe; failing to follow it can affect costs outcomes even if a party wins at trial.

Can a tenant avoid a dilapidations claim entirely?

A tenant cannot avoid its repairing obligations under the lease, but a well-negotiated schedule of condition at the start of the term, proactive maintenance, and early legal advice before expiry can substantially reduce or eliminate liability.

When should I get advice on dilapidations?

Ideally well before a lease expiry or break date, and certainly as soon as an interim or terminal schedule is received, so that valuation and legal arguments can be properly prepared before a claim escalates.