How to Challenge Dilapidations Claims in Commercial Leases

When a commercial lease ends, landlords commonly serve a Schedule of Dilapidations and a Quantified Demand claiming compensation for breaches of repair and other condition covenants. These claims can be substantial and contentious. A tenant who simply accepts them may end up paying far more than they are legally obliged to. Fortunately, tenants have structured rights and processes available to challenge dilapidations claims, defend their position, and negotiate more realistic outcomes. This article explains those rights and steps in clear, practical terms for landlords, tenants, legal students and members of the public.

What Are Dilapidations in a Commercial Lease?

Dilapidations refer to a landlord's claim for damages against a tenant where the tenant has not kept the property in the state required by the lease covenants. These typically include:

• Repair obligations during the lease term and at lease end
• Decoration covenants
• Reinstatement of alterations carried out under licence
• Compliance with statutory requirements under the lease

The claim is usually expressed in a Schedule of Dilapidations prepared by a surveyor and served with a Quantified Demand setting out alleged breaches and costs.

Understanding the Legal Framework

Statutory Limits on Dilapidation Damages

Under section 18(1) of the Landlord and Tenant Act 1927, damages for dilapidations arising from disrepair are limited to the amount by which the tenant's breach has reduced the value of the landlord's reversion. This cap can significantly reduce liability, especially where the property is to be redeveloped or substantially altered, as the effect of disrepair on value may be minimal.

Pre‑Action Protocol: A Key Procedural Step

Before any court claim is issued, both parties are expected to comply with the Pre‑Action Protocol for Claims for Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy (the “Dilapidations Protocol”). This protocol, regarded as standard practice, sets out the expectations for:

• Serving the schedule and quantified demand
• Responding in detailed written form
• Exchanging documents and evidence
• Engaging in good‑faith negotiation or Alternative Dispute Resolution (ADR)

Following the protocol is important in preserving your rights and demonstrating reasoned engagement if the dispute escalates to litigation.

Step‑by‑Step: How Tenants Can Challenge Dilapidations Claims

1. Review the Lease Obligations Carefully

Before you respond to any claim, reread the repairing, reinstatement, decoration and yield‑up covenants in your lease. The scope of your liability is defined by these contractual obligations. Ambiguities in wording are often at the heart of disputes and may work in your favour if properly analysed.

2. Check the Schedule and Quantified Demand

When you receive the schedule:

• Ensure it identifies each alleged breach clearly
• Confirm that each item is actually a breach of a covenant in your lease
• Check that costs claimed are genuinely necessary and not speculative or unrelated to your obligations

Landlords sometimes include works that are excessive or go beyond the contract terms.

3. Instruct Professional Advisors

A common practical step is to appoint a chartered building surveyor experienced in dilapidations to:

• Inspect the premises and compare the current condition with your lease obligations
• Assess the landlord's proposed works and costs
• Prepare a formal schedule of your positions, often in a Scott Schedule format, which lists each item with your response and evidence

This independent analysis can form a robust basis for negotiation or defence.

4. Prepare and Serve a Detailed Formal Response

Within the time frame specified by the protocols or lease (often 56 days), serve a written response to the landlord's schedule and Quantified Demand. Your response should:

• Address each alleged breach point by point
• Explain why items are disputed or how costs are unreasonable
• Provide evidence such as photographs, maintenance records, valuations and professional reports
• Reference relevant lease terms and statutory protections like section 18 limits where appropriate

This structured response clarifies your position and avoids leaving issues unaddressed.

5. Negotiate Early and Consider ADR

Negotiation is often more cost‑effective than court litigation. Many disputes resolve or narrow significantly through:

• Direct negotiation between surveyors or solicitors
• Mediation or early neutral evaluation under the Pre‑Action Protocol

Engaging in negotiated settlement can reduce professional costs and the stress of formal proceedings.

6. Object to Unreasonable Costs

When challenging the quantum (cost) of works:

• Ask for supporting invoices, tender documents or cost breakdowns
• Compare the landlord's figures with your surveyor's estimates
• Where the landlord's works exceed what is “reasonably required” by lease obligations, make this clear in your formal response

The law does not allow landlords to recover costs for improvements or upgrades that exceed mere repair or reinstatement required under the lease.

7. Use Statutory Defences

Section 18(1) of the Landlord and Tenant Act 1927 allows a tenant to argue that the landlord's claimed damages must reflect actual depreciation in the reversion's value, not full repair costs. This can be particularly valuable where:

• The landlord intends to redevelop or substantially alter the premises
• Repairs would not materially increase the value of the landlord's interest

A tenant should set out this defence in their formal response and support it with evidence where possible.

What Happens If Negotiation Fails?

If the landlord persists and the parties cannot agree, the landlord may issue a court claim for breach of covenant. At this stage:

• Ensure you have complied with the Pre‑Action Protocol
• Prepare to exchange evidence through disclosure processes
• Consider legal representation for court proceedings

Courts will assess your contractual obligations, the reasonableness of costs, statutory limits and evidence provided by both sides.

Time Limits and Practical Considerations

• A Schedule and Quantified Demand are typically expected promptly after lease expiry, often within 56 days, although this is practice rather than a strict legal deadline.
• A claim for breach of covenant generally must be brought within six years from the breach, or potentially 12 years if the lease is a deed.

Failure to respond within expected time frames can weaken negotiation positions, so act promptly once a schedule is received.

Common Questions in Challenging Dilapidations Claims

Can tenants challenge the extent of repairs claimed?
Yes. Tenants can dispute any items that are not genuine breaches of lease obligations or that impose unreasonable standards beyond fair repair.

Can tenants challenge costs?
Tenants are entitled to see evidence supporting costs and can argue that amounts claimed are disproportionate or unnecessary.

Does a Schedule of Condition help?
Yes. A Schedule of Condition prepared at the start of the lease can limit liability by showing the original state of the property.

Key Takeaways

Challenging a dilapidations claim in commercial leases involves:

1. Carefully reviewing lease obligations and statutory limits on damages.
2. Examining the Schedule of Dilapidations for overstatement or items beyond your contract.
3. Appointing professional advisers, especially surveyors, to support your response.
4. Serving a detailed formal response addressing each alleged breach and cost.
5. Negotiating constructively and considering Alternative Dispute Resolution.
6. Relying on statutory protections, including the section 18 cap on damages, where applicable.
7. Complying with procedural protocols to strengthen your position if litigation becomes necessary.

Acting early, building evidence and engaging professional support improves your ability to achieve a fair outcome.