Property: battles as landlords and tenants clash on 'dilapidation’

Legal battles between landlords and occupiers over refurbishment costs are set to increase as the build-up of commercial leases due to expire reaches a peak over the next two years.

One professional in the property industry, who preferred not to be named, said these dilapidation claims were a ‘huge issue’.

‘Tenants have this threat of a huge bill at the end of their lease and the possibility of time-consuming legal action. Disputes over dilapidations are only going to get more common because everyone is looking to recoup money,’ he said.

With everybody watching the bottom line, the fight over so-called ‘dilapidation’ claims when a lease comes to an end has become increasingly vigorous.

Dilapidation refers to a tenant’s legal duty to repair damage or deterioration of a property when their lease comes to an end. But as with many aspects of property, the subjective nature of valuations mean that claims are often disputed and lead to lengthy legal proceedings.

Anecdotal evidence suggests the number of disputes is rising and with both sides negotiating harder than ever, costs can run into the millions.

The trend shows no sign of abating as research by Jones Lang LaSalle, the global real estate services company, shows that 50% of all high street and shopping centre leases in the UK will expire by 2015, while around half of that will occur in the next two years.

This year alone, 6.2 million square feet of office space in London will be affected by lease breaks and expiries, also known as ‘structural events’. A further eight million square feet will be renegotiated in the main regional markets of the South East, Birmingham, Leeds and Manchester.

Among the most watched events will be the end of 25-year leases written in the 1980s building boom in shopping centres and high streets across the country. ‘The longer the lease, the more outdated the premises are likely to be. If a landlord wants to upgrade the building, then you have a real dispute about who is liable for that cost,’ said Jonathan Ross, head of property litigation at law firm Forsters.

‘Problems arise when the landlord is not being honest about the use of the property and simply intent on maximising its claim by charging for refurbishments they don’t intend to make. It has made it a very difficult market.’