Dilapidations Claims: Section 18 Cap and Tenant Defence Strategies

What dilapidations means

"Dilapidations" is the catch-all term for breaches of:

• Repair — usually the most substantial — failure to keep the property in repair as the lease requires
• Decoration — failure to redecorate at intervals (often every 3-5 years and at lease end)
• Reinstatement — failure to remove tenant's alterations at lease end if the landlord requires
• Yielding up — failure to leave the property in a clean and rid-of-rubbish state at lease end

These breaches sit in standard commercial leases as covenants. A tenant who hands back a property in a worse state than the lease requires faces a claim for the cost of putting that right.

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The Schedule of Dilapidations

The landlord prepares a Schedule of Dilapidations — usually drafted by a building surveyor. The Schedule lists:

• Each alleged breach
• The clause of the lease said to be breached
• The work needed to remedy it
• The estimated cost

The Schedule is the headline number. But the Schedule is the starting point for negotiation, not the final figure.

In proceedings the schedule is usually developed into a Scott Schedule under the court's directions.

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The Pre-Action Protocol for Dilapidations

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") frames the process before any claim is issued.

The Protocol requires:

1. A costed Schedule of Dilapidations — served by the landlord within a reasonable time, which the Protocol indicates will normally be not more than 56 days after the termination of the tenancy
2. A Quantified Demand — served within the same timescale as the schedule (para 4.2.3), totalling damages plus other claims (loss of rent, fees, VAT) the landlord seeks
3. A Response from the tenant usually within 56 days after the landlord sends it (para 5.2), item-by-item agreeing or disputing each line
4. Meeting — generally within 28 days after the Response (para 7.1); Stocktake — a further review of positions (para 10)
5. ADR — mediation or expert determination in many cases

The Protocol is not optional. PD Pre-Action Conduct paras 13–16 (CPR 3.1(4)–(6), 44.2(5)(a)) give the court power to penalise non-compliance with adverse costs orders.

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The section 18(1) cap — the tenant's most powerful tool

Section 18(1) of the Landlord and Tenant Act 1927 contains two limbs.

Limb 1: the cost-of-repair / diminution-in-value cap

Damages for breach of a covenant to keep or put property in repair "shall in no case exceed the amount (if any) by which the value of the reversion (whether immediate or not) in the premises is diminished owing to the breach of such covenant or agreement as aforesaid".

In plain English: the tenant pays the lesser of:

• The cost of doing the repair work, and
• The reduction in the open-market value of the landlord's reversion caused by the breach

Where the cost of repair exceeds the diminution in value, the diminution is the cap.

This commonly applies in markets where:

• The property is in a sector where repair-state is irrelevant to letting prospects (e.g. tertiary-quality industrial space let on short terms)
• The property would have to be remodelled to attract a new tenant anyway
• The lease was held over a long period and obsolescence dominates condition

Limb 2: supersession

Section 18(1) continues: "and in particular no damage shall be recovered for a breach of any such covenant or agreement to leave or put premises in repair at the termination of a lease, 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 or be pulled down, or such structural alterations made therein as would render valueless the repairs covered by the covenant or agreement."

In plain English: if the landlord is going to demolish or substantially alter the property anyway, damages are nil — the breach causes no actual loss. This is the supersession defence (this limb applies to covenants to leave or put in repair at termination).

This is a complete defence where applicable. It does require evidence — usually planning permissions, drawings, marketing material to prospective tenants on a redeveloped basis, or board minutes recording the demolition decision.

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Evidence the tenant will want

A robust tenant defence to a dilapidations claim usually involves:

1. A counter-Schedule — the tenant's surveyor responds line-by-line, agreeing reasonable items and challenging excessive ones
2. Diminution evidence — a chartered surveyor's opinion on the diminution in the reversion's value caused by the unrepaired breaches, comparing the open-market value of the reversion (a) in the unrepaired state in which it was handed back, against (b) in the state required by the covenant. Where the landlord has done the works, their reasonable cost may be evidence of diminution (Ferguson Latimer v Carney [2006] EWCA Civ 1417 at [39]–[40], discussing Crewe Services & Investment Corp v Silk [1998] 35 EG 81); see the RICS standard Dilapidations in England and Wales (7th edition, 2024)
3. Supersession evidence — planning consents, marketing materials, board minutes, designs, contracts with developers showing planned works
4. Mitigation evidence — what the landlord could reasonably have done to mitigate (e.g. accepted a tenant on existing condition with a rent-free in lieu of repair)
5. Lease analysis — does each item alleged actually fall within the covenant relied on? (e.g. a "fair wear and tear" exception, a "decorate as necessary" formulation rather than a 3-year cycle)

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Common tactics that reduce a dilapidations claim

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Loss of rent — the related claim

In addition to the cost of repairs, landlords commonly claim:

• Loss of rent during the period the property is being repaired (assuming a tenant could not have been found while works were in progress)
• Service charge for the same period
• Rates for the same period
• Loss-of-rent funding (interest charges if the landlord borrowed)

Loss of rent is recoverable only if it is genuinely caused by the breach. If the property would not have re-let in any event (poor market, surplus stock, location issues), loss-of-rent claims are often defeated. At common law the measure is the cost of repairs plus loss of rent for the period needed to do them, capped by s.18(1) (Tiger Aspect Holdings v Sunlife Europe Properties [2013] EWCA Civ 1656 at [1]).

The tenant's tools here are:

• Market evidence (other comparable properties have not let recently either)
• The marketing campaign actually run (poor or absent)
• The reasonable letting void in any event
• Whether any prospective tenant was lost specifically because of the disrepair

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When dilapidations cases settle

Most dilapidations claims settle. Settlement usually happens at one of these stages:

• After the Schedule and counter-Schedule — when the surveyor-to-surveyor exchange has clarified the issues
• After the stocktake meeting — surveyors find common ground at meeting
• At mediation — third party helps bridge the gap
• At expert determination — both sides agree to be bound by an independent surveyor's view

Going to a full trial on dilapidations is unusual — typically reserved for cases where there is a fundamental dispute (the supersession point in a development case, or the lease itself is unclear).

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Bundle preparation for a dilapidations trial

If the case does go to trial in the County Court hearing centre or High Court Property, Trusts and Probate List, the bundle commonly contains:

• Section A: Pleadings (Particulars of Claim, Defence, Reply, amended Schedule)
• Section B: Lease and any side letters, Schedule of Condition
• Section C: Witness statements
• Section D: Schedules of Dilapidations and Counter-Schedules
• Section E: Surveyors' reports (claimant)
• Section F: Surveyors' reports (defendant)
• Section G: Joint statements
• Section H: Valuers' reports on diminution
• Section I: Photographs and condition surveys
• Section J: Marketing materials, planning consents, post-lease works documents
• Section K: Inter-party correspondence

BundleCreator's Commercial Property template orders the bundle in the structure trial counsel expect. Pagination, hyperlinked index, OCR, and bookmarks are produced automatically. A complex dilapidations trial bundle that takes 8-15 hours to assemble manually is usually finished in around 30 minutes.

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Frequently asked questions

Can I leave the property "as is" and pay the landlord cash?

Yes — this is the most common outcome. A negotiated settlement avoids the disruption of doing repair works during a vacate, and gives the landlord cash in hand. The tenant pays an agreed sum representing the diminution / repair (whichever applies), and the landlord then does whatever they choose with the property.

What if the landlord makes me do the works during the lease?

Mid-term repair claims are different from end-of-term claims. They follow the Leasehold Property (Repairs) Act 1938 — a landlord cannot bring a damages claim or forfeit for breach of repairing covenant during the term without first serving a s.146 notice (for damages, at least one month before the action), and if the tenant serves a counter-notice within 28 days, the landlord needs the court's leave; applies to leases granted for 7 years or more with 3 years or more unexpired (1938 Act ss.1(1)–(3), 7(1)). The 1938 Act protects tenants from being squeezed mid-term.

What about energy efficiency standards (MEES)?

The Minimum Energy Efficiency Standards (MEES) regime under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 requires a minimum EPC rating of E for new lettings since 1 April 2018, and (since 1 April 2023) for the continued letting of all non-domestic privately rented property. Government has consulted on raising the non-domestic minimum; no higher standard is in force (the legal minimum remains band E: reg 22(b)). The expense of bringing premises up to the standard depends on the lease — landlord's, tenant's, or shared. A property needing MEES upgrade work to be re-lettable can affect dilapidations strategy: supersession or diminution arguments may strengthen, as the work would be done in any event.

Are reinstatement costs always recoverable?

Section 18(1) caps damages only for covenants to keep, put or leave premises in repair; a reinstatement covenant is outside it, but damages are still limited to the landlord's actual loss at common law. The landlord must show:

• The lease required removal of the alterations
• The landlord required removal in writing (often a Reinstatement Notice served before lease end)

Many "reinstatement" items are agreed to remain because they add value to the next letting.

Can a tenant claim against the landlord?

Yes, sometimes. Tenants can claim:

• Damages for landlord breach of covenants (e.g. covenant for quiet enjoyment, covenant to repair structure where the landlord retains structural responsibility)
• Recovery of overcharged service charges
• Damages for failure to provide services

These are run as counterclaims against the dilapidations claim or as separate proceedings.

What if I do the works myself before lease end?

Doing the works yourself is sometimes the cheapest answer — particularly in trading sectors where you control your own contractors and are paying retail rates anyway for routine maintenance. The Schedule disappears as items are completed. A pre-termination Schedule can identify what to do; the surveyor's final inspection then confirms compliance.

But beware specification — the works must meet the standard the covenant requires. Unsuitable specification can leave the works in breach of covenant even if the items were addressed.

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Further reading

• Landlord and Tenant Act 1927 — particularly section 18
• Pre-Action Protocol for Dilapidations
• CPR Part 56 and PD 56 — claims under the Leasehold Property (Repairs) Act 1938 (dilapidations damages claims are issued under Part 7)
• Leasehold Property (Repairs) Act 1938
• Lease Renewal Under the 1954 Act: Section 25 and Section 26 Notices
• Service Charge Disputes in Commercial Leases: How Tenants Challenge Costs