JP Morgan v Sports Direct: Dilapidations dos and don’ts!

Sports Direct took a 10-year lease of a unit in a complex in Wigan in 2014. The premises comprised a distribution centre, office and warehouse space, as well as car parks and two helicopter hangers. In 2019, Sports Direct exercised its break clause and vacated the property (also resulting in the loss of 300 jobs).

JP Morgan is alleging that Sports Direct:

1. failed to complete most of the refurbishment work it was contractually required to do before it vacated (despite being given more than 6 months to make good any alterations or changes it had made without the landlord’s consent);
2. breached some covenants; and/or
3. caused loss and damage (including loss of rent and interest accrued since November 2022).

These issues involve the allegation that the retailer failed to correctly respond to a schedule of dilapidations issued under the dilapidations protocol.

We will continue to watch these proceedings closely and will update you.

Practical tips about how to deal with dilapidations at the end of a lease

It is critical to get this right to avoid any costly disputes. Here are some practical tips:

For landlords

1. Start the assessment early – survey the property in advance of the lease expiry to identify any potential issues.
2. Engage professionals to thoroughly review the lease and any licences for alterations – understand the repairing obligations and any specific requirements about the property’s condition at the end of the lease term.
3. Seek professional advice – from surveyors or building consultants who specialise in dilapidations. They can provide a detailed assessment of the property’s condition and advise you on next steps.
4. If you want your tenant to undertake the repairs, consider serving a schedule of dilapidations several months before the end of the lease to allow them time to do the works.
5. Always reserve your right to serve an updated schedule if appropriate.
6. If you don’t want the tenant to undertake the works, consider a monetary settlement before you start advertising for reletting.

For tenants

1. Obtain your own survey to see if there are any significant areas of concern re disrepair. They will be able to advise you what items need repair in accordance with your lease and how much they are likely to cost.
2. Consider whether you should undertake the repairs before the lease ends – this can help reduce dilapidation claims and potentially reduce costs.
3. Engage with the landlord – discuss potential issues and agree the scope of works and associated costs – it could be the landlord has a potential new tenant lined up who would benefit from some of the changes made to the property.
4. Weigh up the costs – before undertaking major repairs, it may be easier and cheaper to settle with the landlord rather than undertaking to pay for significant works – this could be particularly relevant if the property is going to be redeveloped or relet very soon after your departure.
5. If you have a schedule of condition from the outset of the lease – ensure that your surveyor sees this as it limits your dilapidations liability.
6. Keep records and document everything – including all correspondence (emails, letters etc.) including any important agreements reached with the landlord.
7. Does the landlord have a rent deposit? This could go a long way to reduce the amount that you may have to pay at the end of your lease.

Our experience

Our Property Disputes team are highly experienced in advising on dilapidation issues and helping clients to navigate through the dilapidations process and to avoid claims. We recently acted on a case where a tenant client had negotiated an early surrender with a payment for dilapidations by himself.  However, when we were asked to formalise the agreement, we found that the landlord had already taken possession of the property and was about to relet, and that the client had forgotten about a large rent deposit that he had paid to the landlord 12 years ago.  We advised the client not to surrender on those terms and to wait for the lease to end contractually.  We are now in the process of seeking a return of the full rent deposit without a dilapidations payment as the property is now relet – hopefully a successful outcome for our client!