The dilapidations schedule at the end of a lease: what you actually owe

It is itemised, it looks official, and the number at the bottom bears no relation to the building you occupied. It is a claim for damages, and the statute caps it at the landlord’s loss rather than the cost of the works.

Problems, in order · Part of Outsourced General Counsel

The schedule arrives a few weeks before the lease ends, or a few weeks after you have handed the keys back. It is long, it is itemised, and at the bottom there is a number that bears no relation to the building you remember occupying. Ceiling tiles, floor coverings, redecoration throughout, the mezzanine you installed with the landlord's written consent, professional fees, loss of rent for the period of the works.

Two instincts follow, and both are wrong. The first is to pay it because it looks official. The second is to ignore it because it looks absurd. The right response is to work out what the claim is actually worth, which is a different number from the one on the schedule, and is very often a great deal lower.

What is a schedule of dilapidations?

A terminal dilapidations schedule is prepared by or for the landlord and sets out the breaches of the repairing, decorating and reinstatement covenants it says you have committed, with the cost of putting each right. It is a claim for damages. It is not an invoice, it has not been assessed by anybody independent, and the costs in it are the landlord's surveyor's estimate of remedial works, not a measure of the landlord's loss.

That distinction is the whole of the argument, and it is worth understanding before you respond to a single line item.

What is the section 18 cap on dilapidations?

The words come from a 1927 Act and have not changed:

Damages for breach of a covenant to repair — during the lease or at its end — cannot exceed the amount by which the value of the landlord's reversion is diminished because of the breach. That is the cap in section 18(1) of the Landlord and Tenant Act 1927, and it converts the question from "what would the works cost?" to "what is the building worth in its actual state, compared with what it would be worth in the state the lease required?"

Those two figures are often much closer than the schedule implies. A tired office in a market where every incoming tenant strips out and refits is not worth materially less for being tired. The works still cost £180,000. The diminution may be a fraction of that, and the fraction is what is recoverable.

The same section carries a second protection. No damages are recoverable for failing to leave premises in repair at the end of the lease if the premises would, at or shortly after termination, have been pulled down or so structurally altered that the repairs would have been valueless. If the landlord has planning permission for a redevelopment, or has already appointed a contractor to strip the building, that is not incidental background. It may be the answer to the entire claim.

Interim, terminal or anticipated: which schedule have you been sent?

A terminal schedule is the one this piece is mostly about, because it is the one that turns into a claim for damages. An interim schedule is different in kind: the lease is still running, the landlord wants the work done rather than paid for, and its remedies are the ones in the lease, which may include entering to do the work and recovering the cost. An anticipated schedule is an invitation to do the work before the lease ends, at your own cost and to your own standard, which is almost always cheaper than paying the landlord to do it afterwards. In a dispute, both sides' positions are eventually set out item by item in a Scott schedule, one column each, which is the document the negotiation actually happens on.

What actually decides the number

Five things, in roughly this order.

The lease. What was the repairing obligation — full repairing, or something qualified by a schedule of condition? Was the fit-out consented to, and did the licence require reinstatement or merely permit it? Is there a decorating covenant with a frequency attached, and when was it last complied with? Most of the arguable ground is in the documents, not in the building.

The schedule of condition. If one was taken at the start of the term and annexed to the lease, it limits the obligation to the standard recorded in it. Tenants who took one and then forgot about it routinely pay for defects that were photographed on day one.

The evidence of the landlord's intentions. Marketing particulars, planning applications, contractor appointments, the state of the building six months later. What the landlord actually did with the premises is admissible, and it frequently undercuts the claim.

The valuation evidence. Diminution is a valuation question, and it needs a valuer. A tenant arguing the cap without valuation evidence is asserting a defence rather than proving one.

The conduct of the exchange. The Dilapidations Protocol sets out how the parties are expected to behave before proceedings: the form and quality of the schedule and the Quantified Demand, the endorsement the landlord's surveyor is expected to give, the response the tenant is expected to make, and the timetable for exchanging information and negotiating. Departing from it without good reason is visible to a court later, and it costs.

The mistakes that cost the most

Handing the keys back without a documented exit. Photograph and video everything, dated, before the final day. Once you are out, the building's condition is whatever the landlord's surveyor says it was.

Missing the reinstatement question. Fit-out you were permitted to install is often fit-out you are obliged to remove, and reinstatement is regularly the largest single head of claim. It is also the one most easily negotiated away when the incoming tenant wants what you built.

Negotiating item by item. Arguing 240 lines of a schedule concedes the framing that the works cost is the measure of loss. The cap argument is run at the level of the whole claim.

Leaving it too late. The strongest evidence — the state of the premises, the landlord's plans, the marketing material — is time-limited. A claim answered eight months after the schedule arrives is answered without the best of it.

What Dinmore Bell does with a dilapidations claim

Dinmore Bell takes the claim over. That means reading the lease, licences and any schedule of condition to establish what was actually owed; assembling the exit evidence and the record of what the landlord did with the building; instructing and directing the building surveyor and the valuer so the diminution case is evidenced rather than asserted; preparing the response to the Quantified Demand within the Protocol's expectations; and running the negotiation to settlement under its own name, so the correspondence stops arriving on the founder's desk.

The commercial objective is stated at the outset — a target settlement range and a walk-away number — and the file is run against it rather than against the schedule.

Where a specialist is needed

Building condition and remedial costings are evidenced by a chartered building surveyor. Diminution in the value of the reversion is evidenced by a valuer. Both are instructed and directed by Dinmore Bell as part of the same strategy, with one scope and one set of deadlines.

If the claim proceeds to litigation, proceedings are issued and conducted by instructed solicitors, under Dinmore Bell's control, with counsel instructed where the valuation evidence needs testing.

Where a settlement affects the accounting treatment of a provision already made, or the timing of a deduction, the position is confirmed with the business's accountants. Dinmore Bell coordinates that and holds the record; the tax treatment is theirs.

The short version

A dilapidations schedule is the opening bid in a valuation argument, and the statute caps the answer at the landlord's actual loss rather than the cost of the works. Read the lease first, the building second. Keep the evidence of your exit and of what the landlord did next. Instruct a valuer early enough for the cap to be provable rather than merely arguable. And answer the whole claim, not the line items.

Dinmore Bell provides an outsourced General Counsel function for founder-led businesses, owning work of this kind end to end rather than advising on it and handing it back.