Practicalities of Dilapidations in a post-COVID World

So, what will happen with commercial property after the pandemic?

At this stage it is probably too early to say.

So far as offices are concerned, there is little doubt that we will be looking at a different world; at present, the return footfall to Mansion House London Underground Station is only 5%.

As I visit offices in Central London, they are largely ghost buildings. This is particularly the case with those occupied by lawyers or accountants or other large service industries. Some buildings have more reception staff than occupants.

There seems little doubt we have all got used to working from home – something I have been medically forced to do for a while now. It works well: I go to London for meetings and to view buildings and then I go home to do the work.

I suspect that in the future a lot of tenants will look to downsize. The offices of the future will need to be more open plan, flexible and fun to be in. More of a venue than an office. Somewhere to meet safely and deal with mentoring and other interactions.

At least so far as offices are concerned there has been no immediate thrust to make seismic changes to the structure of leases. To get the dinosaurs of the legal world to change their thinking on lease structure is almost inconceivable. So, what will be the practical effects on lease end dilapidations?

For the moment at least, nothing much will change. It is likely to be, however, that the outcomes will be very different.

Of course, we can all present our dilapidations claim on the basis of cost of works, reinstatement, repair, redecoration and compliance with statutes. However, as we all know the outcome will depend on what actually happens. It is the outcomes which are very much more uncertain now than before as there are already lots of different factors to take into account.

We are guided by the Property Litigation Association protocol. It has always been the case that after the end of the lease the landlord has two ways to proceed. Either, to do works and seek to recover relevant costs or, if no works are to be undertaken to seek to justify their loss by reference to a valuation under Section 18(1) of the Landlord and Tenant Act 1927. The real issue, therefore, is what the landlord is to do with his property in this post-COVID world.

Landlords are going to have to think about their buildings in entirely different ways. Many suspect that overall office demand will drop. In London, for example, there are going to be a lot of buildings which are going to struggle to be used as offices in the future. This is no bad thing and, as anyone knows in the property world where one door shuts another opens and having a vacant building should be considered an opportunity rather than a threat.

Many buildings or indeed parts of buildings will need to be converted to other uses. Frankly, it is likely to be no bad thing that large parts of Central London may become more residential. I for one would be very happy to move back into the city if reasonable, affordable accommodation could be provided.

Obviously, however, where buildings are converted then, much of a traditional dilapidations claim will be superseded except, perhaps, for stripping out of the tenant’s original partitions etc. In a similar way, where demand for offices is likely to be difficult at the margin, landlords may be reluctant to spend money if the tenants are not there. If no work is done will, in fact, a Section 18(1) valuation be able to establish a loss?

Similarly, many buildings may have to have significant improvement in terms of their air quality and ventilation and this too may add to elements of a dilapidations claim being rendered valueless. Unfortunately, the overall outcome may be that whereas previously landlords might have had a more obvious and straightforward way to deal with recovery of dilapidations after the end of the term going forward, the prospects of making a good settlement may be significantly hampered by the works they are going to have to do to their buildings to make them fit for a post-COVID world.

If you are interested in dilapidations or would like to discuss how we can support your works during this time, please call Roger on 020 7280 8152 or email him at roger.watts@tridentbc.com.

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