Whether you're considering repurposing a leased asset or acquiring a new investment with a sitting tenant, it's key to ensure your PR & marketing strategy does not inadvertently destroy the value of any future dilapidations claim.
Where a lease does not have a valid payment clause, a dilapidations claim against the tenant will often hinge on the landlord's intention for the building in question.
Broadly speaking, where a commercial landlord has carried out the works in the terminal schedule of dilapidations or has satisfied the court or arbitrator that it intends to carry them out, then the value of the landlord's dilapidations claim will be assessed by reference to the value of those works.
However, if it is found that the landlord does not intend to carry out the works - and, for instance, plans to redevelop the building instead – then the value of the landlord's dilapidations claim will generally be limited to the diminution in value of the building (i.e. the amount by which the building has been diminished in value as a result of the wants of repair).
So, where a commercial landlord is considering redeveloping either a new or an existing asset which is subject to an FRI lease, it is key to keep in mind the potential implications of publicising those redevelopment plans.
The tenant could point to press releases about future redevelopment in order to prove that the landlord has no intention of carrying out the repairs (even where the landlord's intention is actually to re-let the building in the short to medium term and where repair works are needed to facilitate that).
Given the fluctuating cost of construction and concerns about cashflow, more and more landlords are electing to wait until they are in receipt of dilapidation settlement funds before instructing repair works and so the question of landlords' intentions is likely to remain front and centre in dilapidations claims. It is critically important to ensure that a hastily issued press release does not inadvertently destroy the value of any such claim.
If you require advice in connection with a dilapidations claim, please do not hesitate to get in touch with our Real Estate Disputes team or your usual Brodies' contact.