I was recently contacted by a senior member of the antiques trade on a problem he thought sufficiently prevalent with art dealers that it would be worthwhile writing about it.
It seems this particularly affects dealers in the West End of London but can involve anyone in business.
Put simply, their lease comes to an end, they are about to leave, and much apparently to their surprise they get hit by the landlord with a very large bill, which can easily amount to many tens of thousands of pounds for dilapidations under the terms of the lease.
In simple terms this requires the tenant at the end of the lease to put the premises back in the state of repair that it was at the beginning of the lease.
This comes as a very big shock.
There are some fairly straightforward points which can greatly assist, as follows:
• Ensure you get a schedule of condition of the premises prepared when you first acquire the premises. That way the initial, and perhaps poor state, of repair is on record;
• Fundamentally, the landlord is not entitled simply to recover against the tenant his, perhaps extravagant, expenditure in refurbishing the premises.
Section 18(1) of the Landlord & Tenant Act 1927 limits the landlord’s recovery to the ‘ diminution in the value of the landlord’s reversion’. So, if the landlord’s interest (‘the reversion’), be it freehold, or leasehold, has not diminished in value at all, then the tenant is liable to pay nothing;
• Directly following on from the above, and under the same section of the Act: “No damage shall be recovered… if it is shown that the premises, in whatever state of repair they might be, would at or shortly after the termination of the tenancy have been pulled down, or such structural alterations made… as would render valueless the repairs covered by the covenant or agreement.”
In other words, if for example the landlord is going to demolish the premises or completely refurbish them himself, then he has lost nothing by the tenant not doing what he is strictly required to do under the terms of his lease. This is a matter of common sense.
• Get hold of a surveyor who specialises in dilapidations who will inspect the property and prepare an authoritative professional schedule which will likely argue that a much smaller sum than is being claimed, if anything at all, is due pursuant to the above legislation. A good surveyor, and maybe also a lawyer familiar with the way it works, can save a great deal of money.
At the request of the trade member who asked me to write this, I contacted a number of dealers who had been through the experience.
There were wide-ranging and different reports. In some cases there was no paperwork at all, in others detailed spreadsheets from surveyors.
By a strange coincidence I was able to advise my initial contact that my own firm left premises many years ago from exactly the location which gave rise to his complaint, that I was burdened with negotiating the dilapidations with the landlords upon our departure, and that my recollection was that we paid out nothing.
I confirmed my recollections with another partner and this was indeed so – precisely because the work which we never did, that was required on termination of the lease, caused the landlord no damage due to his intended refurbishment.
We had a very good surveyor in to make the point. I passed that same surveyor on to a client in the same position.
So, in summary, taking some care and caution, questioning the claim, seeking out the landlord’s plans for the future, and instructing a surveyor who does dilapidations work are always good actions to take.
Milton Silverman is senior commercial dispute resolution partner at Streathers Solicitors LLP, London.