End of lease repairs – What do landlords need to know?

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The end of a tenancy can be a stressful time for landlords, faced with a range of repairs before they can relet the property.

“Dilapidations” is the term generally used to refer to the process a landlord needs to follow to recover any loss they may have suffered as a result of the tenant’s failure to return the property at the end of the lease, having reinstated any items of damage or disrepair in accordance with the repairing standard imposed on them under the terms of the lease.

Tenants often fail to realise the importance of the wording of their lease and exactly what obligation they have accepted regarding the state of the premises to be returned to the landlord. They will be well aware of costs involved such as rent, business rates, utility bills, any service charge and their own fit-out costs, but it is easy to overlook a potential dilapidations liability.

At the end of the lease, especially if their business has been struggling, this cost is likely to be furthest from their minds. However, it is very much a legal commitment they cannot easily avoid when the landlord enforces the terms of the lease, a contract is a contract, agreed to at the start by both parties, so the exact wording of the lease is very important.

Estimate the cost

If the repairing clause and dilapidations clause are clear from the outset this allows the tenant to make an informed estimate of their liability during and at the end of the lease. This is a complex exercise and some factors which will enter into that equation are:

Here, Oliver Maxwell, senior associate and solicitor specialising in commercial landlord and tenant disputes at Nelsons, provides helpful guidance for landlords and explains key options that a   landlord may be able to take if repairs are beyond the realms of reasonable.

The subject of repairs between landlords and tenants is a complex one says Mr Maxwell, with key factors to consider on both sides. At the end of a tenant’s lease, the landlord may find the care taken by the tenant of their property does not meet expectations. 

This means that disputes may arise inflicting both time and costs onto the landlord, not to mention the possibility of an extended void period when the property remain empty.

While there are no fixed obligations in these circumstances says Mr Maxwell, there are a number of things to bear in mind:  

A tenant’s legal obligation around property condition within a commercial lease varies depending on what the lease says and whether the standard of repair is linked to a schedule of condition at the start of the term. For example, it may be the tenant is obligated to keep the premises in ‘no worse condition’ than the condition set out within the schedule or, where there is no schedule, a general obligation to keep the premises ‘in repair’.

However, an obligation to keep ‘in repair’ and an obligation to keep ‘in good condition’ mean different things – as does an obligation to ‘decorate’ and/or ‘redecorate’, usually at the end and on certain anniversaries of the term, he says.

Conditions in the lease

The definition of what is being demised, or transferred, under the lease will also be important when it comes to ascertaining what the tenant’s obligations are. For example, an ‘eggshell’ lease is usually limited to the interior wall and floor coverings only and does not include any ‘structural’ elements of the building. The tenant, therefore, will not usually be obligated to repair any part of the structure. 

Conversely, where the demise includes the structural elements of the building, there will often – but not always – be an obligation for the tenant to repair such structures. These are often referred to as ‘full repairing leases’. At the end of the term, the landlord will commission a terminal schedule of dilapidations to tell the tenant what, in their view, the tenant needs to do to comply with their repair, and ‘yielding up’, obligations. Breach of these obligations can ultimately lead to a claim for damages based on breach of contract, such as breach of the terms of the tenant’s lease.

How is a ‘good’ standard of repair defined?

The word ‘repair’ is often accompanied by other adjectives or phrases. But the courts have consistently stated that these adjectives make little to no difference to the obligation in question, provided it discloses an intention to repair. ‘Good’ repair, ‘tenantable’ repair, ‘substantial’ repair, and ‘sufficient’ repair are a few examples, and the permutations are potentially limitless.

That being said, all these modifications mean the same thing and it is generally accepted the tenant should undertake any work where – in addition to the age, character and locality of the property – it would make it fit for occupation by an incoming tenant on the same terms as the existing tenant.

Landlord options

If repairs are not to a standard the landlord requires, again much will depend upon the specific terms of the lease. This is what governs the relationship between the parties, but there are some commercial leases that include a Jervis v Harris, or ‘self-help’, clause. 

These clauses allow a landlord to serve notice on the tenant, setting out the repairs required and giving a timescale for them to be completed. Once the notice has expired, the landlord may enter the property to carry out the requisite repairs and recover any costs of doing so from the tenant as a debt.

Aside from a Jervis v Harris clause, a tenant’s breach of repairing obligations may allow a right to forfeit the lease and/or claim damages.

However, caution must be exercised when attempting to forfeit and/or seek damages where the tenant can claim the protection of the Leasehold Property (Repairs) Act 1938 (LPR). The LPR Act will be engaged when the lease is granted for a term in excess of seven years and has three or more years remaining. 

Where the LPR applies, the landlord must first serve notice under Section 146 of the Law of Property Act 1925 (LPA) to identify the breach(es) that have taken place, for example a breach of the repairing agreement, and give the tenant a reasonable amount of time to remedy them. The notice, however, must contain a statement, ‘in characters no less conspicuous than those in any part of the notice’ that the tenant may claim the benefit of the LPR Act. If the tenant then serves a ‘counter-notice’, the landlord must apply to the court for permission before forfeiting or claiming damages.

Legal action

Parties involved in a dispute will always be expected to comply with any relevant pre-action protocol under the Civil Procedure Rules before embarking on legal proceedings. In this context, this would involve the landlord writing to the tenant to set out the case and the legal basis of any prospective claim.

Other than in proceedings for forfeiture, where the landlord must be very careful not to do any act that may ‘waive’ their right to forfeit, such conduct will be expected and could be interpreted as a ‘threat’ of legal proceedings.

As to ‘when’ such a threat should be made, it is beneficial for those involved in commercial leases to maintain an open discourse, which can help prevent grievances from escalating into a legal forum. Parties should speak to each other to try and reach an amicable solution. However, if one party is not engaging, it is not at all inappropriate for the other party to assert their legal rights via their lawyers.

Conclusions

Dilapidations disputes are often complex and high value. As such, it’s well worth seeking good legal advice before either side commits to a commercial lease, so that each party understands their respective rights and obligations

Nelsons – https://www.nelsonslaw.co.uk/landlord-tenant-issues/ – was established in 1983 and provides support to businesses, individuals and families with their legal and investment needs. 

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GONG FISHING: Property awards for HMO landlords announced to reward best in class

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A new property awards has launched that aims to celebrate good landlords in the previously neglected HMO sector.

The HMO Awards is dedicated to highlighting good practice and will hand out gongs to HMO agents, operators and investors at a ceremony with a difference that aims to reward success, share learnings and help the industry grow.

Organised by HMO property management system COHO, which helps tenants find quality house-shares, and HMO Magazine, the event – on 30^th September – includes an afternoon of TED-style talks and networking followed by an awards dinner and after-party.

Helen Turner (pictured), COHO co-founder, says HMOs are becoming the rental of choice, particularly for younger people, while co-living is also increasingly popular.

“This is about great customer service and recognising the needs of tenants,” she tells LandlordZONE – but it’s not just about having a higher property spec or a luxurious living environment.

“The proposition becomes more attractive if there’s a better relationship between landlords and tenants, who look after their properties better as a result,” she says.

HMOs can get a bad press, but there is a new breed of landlord who are professionalising the sector, Turner explains, and these awards aim to recognise this, as well as provide a platform for more collaboration between them. “HMOs are on the rise. We need to celebrate, learn, and grow together as an industry serving millions of people,” she adds.

A private Facebook group for the awards has already attracted 850 people in just a few days and the organisers hope it will become an annual event. Anyone interested can sign up at https://hmoawards.com/ to be updated on information about the awards categories, partnership and early-bird tickets.

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Updating RICS guidence for lenders to assist borrowers affected by Cladding issues

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In a joint statement with UK Finance and the Building Societies Association (BSA), RICS has issued new guidance to lenders to clarify the current lending position for properties with fire safety issues in blocks of flats over 11 meters. Click here

The statement indicates Providing the mortgage application meets all the lender’s other policy and regulatory requirements

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Commercial rent – what to charge?

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Hi, I’m stumped! I have looked at various websites and all give weird and wonderful formulae that are confusing contradictory and I am going around in circles.

All I want to know is how to assess what the current market rental rate is for shops on a particular high street

I know it is based on the exact location and the amount of floor space available in the property but all I really need is a ballpark figure.

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Can I buy the freehold to my flats?

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Hi, I own 8 flats in a block which is all of the flats in the block.

I have been told I can buy the freehold because I own more than 50% of the individual flats.

However

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Solicitors failing to pass on Service Charges?

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I purchase my property nearly a year ago now and my solicitor’s company is refusing to pass on the Service Charges which I had paid to them for the management company as part of the completion.

The sale required an indemnity policy (as the vendor had laid wooden floors in the property which breached the lease)

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Huge landlord fine halved after agent blames Covid for management mistakes

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A landlord father and son who neglected to licence an HMO have had a £24,000 fine reduced by half after their managing agent took the blame.

Jason Raja Sivam and Ponniah Sivam were taken to court by four tenants who lived in the house in Kingsleigh Close (pictured), Brentford, between July 2018 and July 2021.

Their HMO needed a licence from August 2020 when the London borough of Hounslow introduced its additional licensing scheme.

Under rent repayment order (RRO) rules, managing agent Sutherland Estates cannot be held liable, but the firm readily accepted it had failed in its responsibility to ensure the property was licensed, admitting it was unaware of the scheme.

Furloughed

Shehnaz Khan, from Sutherland Estates, told a First Tier Property Tribunal that when the first Covid-19 lockdown was imposed, staff were furloughed and its priorities were to ensure urgent repairs were arranged and that tenants were able to pay their rents.

The family business in West Ealing also helped tenants apply for universal credit.

The judge said the two landlords had played no part in the proceedings, which did not commend them to the tribunal.

“They have apparently adopted the attitude that they had appointed the firm to manage the property and that the current application had nothing to do with them,” he said.

“There has been no acceptance on their behalf of their responsibility to ensure that their property is licenced. Ignorance of the law is no excuse.”

However, despite this, because they had arranged for Sutherland Estates to manage the property, the judge decided to make a substantial reduction in the RRO, which meant they were only fined £12,342, along with £300 costs.

Read the decision in full.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Huge landlord fine halved after agent blames Covid for management mistakes | LandlordZONE.

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Have tenants or their pets damaged your property? Tell Ministers about it here

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A campaign has been launched to find out the true cost of damage caused to rental properties by tenants including their pets and children.

Organised by AdvoCATS founder Jennifer Berezai but supported jointly by LandlordZONE, the National Residential Landlords Association and Propertymark, the campaign is asking buy-to-let investors and letting agents across the UK to complete a short survey to help inform policy-making in Whitehall.

Bereza (pictured)i, who has been lobbying key players within the PRS says she has been told ministers are aware of her organisation’s effort to provide a true picture of damage caused to properties during tenancies across the UK.

The purpose of the research is to provide accurate data of the type of damage caused in rental accommodation by adults, children and pets, as well as the cost to landlords and method of recovery. 

The results will be presented to Eddie Hughes, the Minister for Rough Sleeping & Housing, at the Department for Levelling Up Housing & Communities by AdvoCATS later this Spring, to further enhance their Heads for Tails’ report and proposals to amend the Tenant Fees Act 2019 and making renting with pets easier for both parties, thus avoiding the devastating impact of “no pets” clauses.

Berezai says: “We know that fear and cost of pet damage is one of the main barriers to landlords accepting pets, and this survey will give a better understanding of the reality of those fears, and how they compare to other causes and costs of damage.

“These questions haven’t been asked before, and the answers will give us a unique insight into landlords’ experiences.”

Chris Norris, Policy Director for the NRLA, adds: “We understand the importance that pets have for many renters, especially those wanting companionship.

“However, the system at present does not allow the true heightened risk of pets to be reflected in deposits.
“We encourage landlords to complete this survey as we work to ensure there is sufficient confidence to rent to tenants with pets.”

Take the survey, which is just 12 questions, here.

Timothy Douglas, Head of Policy and Campaigns at Propertymark says: “Many renters are pet owners, but due to the Tenants Fees Act which caps security deposits, letting agents and their landlords are no longer able to fully mitigate the additional risks associated when letting their property to tenants with pets.

“We hope that the responses collected from this survey will strengthen our calls for changes to current rules and that the UK Government will explore options that incentivise landlords to rent to more people with pets.”

AdvoCATS was set up in 2018 to offer a free support and advice service to both landlords and tenants, and assist pet owners who experience difficulty finding rental accommodation. Its approach is also endorsed by 35 organisations including most recently, the Pet Food Manufacturers Association, Proptech-PR and ProtectaPet.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Have tenants or their pets damaged your property? Tell Ministers about it here | LandlordZONE.

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HMO landlords warned not to over-charge ‘all inclusive’ tenants as energy bills soar

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Following energy regulated Ofgem’s decision to raise the price cap by nearly £700 a year per household, HMO landlords have been warned to observe the ‘maximum resale value’ and not offset their higher energy bills by charging their tenants extra.

Student house shares, professional HMOs and dedicated build-to-rent properties that form part of a larger development often offer all-inclusive tenancies.

The warning came after Labour MP Steve McCabe asked the government to clarify whether it had assessed the potential capacity of a landlord or letting agent to increase a tenant’s utility bill mid-way through an assured shorthold tenancy contract.

Housing Minister Eddie Hughes replied that where the landlord was responsible for paying the energy supplier and billed the tenant separately to rent, they could only charge for the ‘maximum resale price’ which includes the energy the tenant has used, the tenant’s share of the standing charge, and the VAT owed.

Landlords and agents who offer ‘all inclusive’ rent deals are deemed to energy resellers and are governed by Ofgem rules.

Its guidance states that if the reseller (landlord) underestimates the cost of energy supplied, “he is obviously entitled to recover the amount undercharged from the customer”.

Civil proceedings

But it warns that anyone who charges more than the maximum resale price may face civil proceedings for the recovery of the amount overcharged and might also have to pay interest.

Some HMO landlords are doubtless considering increasing rent to recoup the added expense.

Read more: The complete guide to running an HMO property.

While HMOs have traditionally generated higher returns than standard properties (between July and September last year, individual flats achieved average yields of 5.9%, according to consultancy BVA BDRC, while HMO yields were a fifth higher, at 7.2%) rising interest rates have now started to erode margins.

Many HMO landlords have already received higher energy bills because of the move towards working from home, which has driven up home energy use.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – HMO landlords warned not to over-charge ‘all inclusive’ tenants as energy bills soar | LandlordZONE.

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LATEST: Official Boiler Upgrade Scheme launches today – but is it enough?

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The government’s Boiler Upgrade Scheme launches today amid fears that landlords will need longer-term funding to help them meet energy efficiency targets.

Grants to encourage property owners in England and Wales to install low carbon heating systems such as heat pumps are now on offer, allowing landlords to claim £5,000 towards the cost of an air source heat pump, £6,000 for a ground source heat pump, or £5,000 for a biomass boiler if the house is in a rural location and not connected to the gas grid.

An installer will apply for the grant on their behalf and the value is then taken off the price paid.

Landlords can still apply under the three-year scheme if they have received separate funding for energy efficiency upgrades such as insulation, doors or windows.

Anyone applying must have a valid Energy Performance Certificate, typically issued in the last 10 years.

However, Propertymark believes a national retrofitting programme backed up by longer-term funding is what’s needed now.

Timothy Douglas (pictured), head of policy and campaigns, says pockets of funding are starting to emerge, but that they are just a “drop in the ocean”.

“The property sector needs a national retrofitting programme that’s linked to realistic and achievable targets and dedicated, long-term grants that take into account the age, condition, and size of properties,” adds Douglas.

“Unless landlords and homeowners are given sustained financial incentives, it is unlikely any real progress will be made in helping them to cut carbon emissions and reduce energy bills.”

The government has proposed that new rental properties will require an EPC rating of C or above by 2025, followed by all tenancies from 2028. Along with the new grants, it also introduced a 0% VAT rate on selected energy efficiency materials in the recent Budget.

Find out more about how to apply.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – LATEST: Official Boiler Upgrade Scheme launches today – but is it enough? | LandlordZONE.

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