When a commercial tenant in Scotland departs premises in a state of disrepair at the culmination of a lease, can the landlord initiate a claim for the rent it loses during the necessary repair endeavors?
The succinct yet unhelpful response is ‘it varies’.
Terminal Dilapidations Schedules regularly encompass significant sums for lost rent. Nevertheless, pursuing such claims is intricate and seldom results in success. Below are our five vital suggestions for commercial landlords in Scotland.
1. Upholding the Principle of Recovering Lost Rent:
In principle, landlords possess the entitlement to reclaim lost rent when the loss arises due to the tenant’s failure to uphold their repair obligations.
This application aligns with the general principle that if a party (here, the tenant) breaches their contract with another party (the landlord), the aggrieved party holds the right to be reinstated as if the contract had been fulfilled. If the landlord would have obtained rent had the tenant adhered to the lease’s terms, then theoretically, the tenant is accountable.
2. Establishing the Link Between Breach and Lost Rent:
The landlord is tasked with substantiating the correlation between the tenant’s contractual breach and the loss of rent incurred.
In essence, the landlord must demonstrate that if the premises had been maintained in the condition dictated by the lease, a new tenant would have promptly taken occupancy. Establishing this nexus is typically the primary challenge for landlords.
Unless the landlord has an imminent new tenant prepared to occupy the premises, the former tenant is likely to contend that their failure to repair did not genuinely cause the landlord to lose rent, as reletting the premises would not have been feasible regardless.
The landlord’s ability to counter this argument hinges on the specific circumstances. Generally, though, the scarcer the demand for the property type in question, the tougher it becomes to substantiate a claim for lost rent.
3. Impediments Posed by Repair:
If the landlord had always intended to refurbish the premises before reletting, it becomes more arduous to attribute any void period solely to the tenant’s actions. The tenant and the court will be attentive to the potential superseding of some or all dilapidations due to the refurbishment. The landlord must prove that the tenant’s failure to repair led to a prolonged refurbishment timeline.
4. Duration of Claimable Lost Rent for the landlord:
Landlords often opt to postpone repairs post-lease expiry, particularly if a new tenant has not been secured. However, the landlord cannot exploit their own delay by seeking to recoup rent from the former tenant during the repair commencement delay.
For instance, if a landlord waits six months post lease expiry before initiating a two-month repair project, lost rent claims would typically be viable only for the two-month repair duration.
A possible exception arises if the landlord must delay repairs due to inadequate funds for immediate remedial works. In such cases, the landlord might claim lost rent for the period spanning from lease expiry until the completion of works.
5. Tenant Rent Recovery Levels May Differ:
Overcoming other hurdles, the rent recoverable from the former tenant corresponds to the rent the landlord could have secured if the premises were preserved as per the lease’s requirements.
This might diverge from the previous lease’s passing rent, as the market conditions could have shifted since that rent was established. If the premises have been relet following repair completion, the new lease’s rent might offer the best insight into the potential attainment at the previous lease’s expiration. Otherwise, determining the appropriate rent level remains another potential area of landlord-tenant dispute.
Key Insights:
As lease expiration nears (provided a notice to quit has been served), landlords should proactively contemplate potential lost rent claims.
Ultimately, lost rent claims are intricately contingent on specific facts. Therefore, seeking advice on the merits of each claim is the wisest course of action as situations arise.
Lastly, landlords and managing agents must ensure familiarity with the lease’s dilapidations clauses, especially concerning any payment obligations, including those for lost rent.
For in-depth insights into lost rent claims, refer to our preceding article on the topic.
If you’re a commercial landlord seeking guidance on pursuing a dilapidations claim involving lost rent, do not hesitate to connect with our Real Estate Disputes team or your usual contact at Clarity Simplicity.
