"...With so much scope for argument it is not surprising that the service of a terminal schedule of dilapidations can give rise to lengthy and expensive litigation..."

 

 

 

 

 

For further information or assistance please contact:

John C Abbott
jca@silvermansherliker.co.uk







Silverman Sherliker LLP
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7 Bath Place, London
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Telephone: 020 7749 2700

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DILAPIDATIONS...WHAT DILAPIDATIONS!

There are few topics within the Landlord and Tenant relationship more likely to give rise to disputes between a Landlord and a Tenant than a schedule of dilapidations served at the end of a lease.

The Landlord will be concerned to ensure that the Tenant has complied fully with the Tenant’s repairing obligations under the lease. In doing so he will be looking to maximise the value of his investment. The Tenant on the other hand will be concerned that he should not have to pay more towards the maintenance of the Landlord’s investment than he has to. It is a fertile area for dispute – however cordial the relationship may have been during the tenancy – now each party may be looking respectively to maximise and minimise the cost to the Tenant.

The scope for argument following the service of a terminal schedule of dilapidations is endless. Are there breaches? And where do they lie? Are the alleged breaches matters that are prescribed by the repairing obligations contained in the lease? It is not unheard of for Landlords and their surveyors to throw everything into a schedule of dilapidations, including (literally) the kitchen sink, regardless of whether they are matters for which the Tenant is responsible under the lease.

The Protocol is intended to be used by the Landlord, and the Tenant, their legal advisers and their surveyors. It is not compulsory to use the Protocol, but failure to materially follow the Protocol may result in the party at fault suffering costs penalties if the matter is brought before the Court. There is a real commercial advantage therefore in adopting the Protocol. To be successful there will need to be transparency between the parties and the Protocol calls for more contact between the parties, an earlier exchange of information and better pre-action investigation. The parties` experts are encouraged to meet early on in order to try to reach as much agreement as possible.

The following are some of the main points of the Protocol:

The schedule should be served within a reasonable time, which in the usual case should not be more than two months after the end of the lease.

The schedule should not include breaches for reinstatement, but where it is intended to make such claims these should be listed separately and identify any notices served by the Landlord requiring reinstatement.

The schedule should give sufficient space for the Tenant’s comments on the breaches alleged, the extent of works and the likely cost. A specimen schedule is available should you wish to see one.

If the claim is based on the cost of works it should be fully quantified and substantiated.

 If the Landlord restricts his claim by reference to section 18 a valuation should be provided, together with sufficient costings of

Arguments can abound regarding the correct interpretation of the Tenant’s repairing obligations, followed by argument over whether the Tenant has failed to meet his obligations. There then follows an argument about the cost of carrying out the various items of work contained in the schedule of dilapidation.

The Tenant is not entirely unprotected and a partial defence is provided to the Tenant by section 18 of the Landlord and Tenant Act 1927. This provides that the Landlord cannot recover more than the diminution in value of the Landlord’s reversionary interest in the property caused by reason of the Tenant’s breaches. Debate can then follow concerning the value of the Landlord’s interest and what effect the Tenant’s breaches have on the value of the Landlord’s interest.

With so much scope for argument it is not surprising that the service of a terminal schedule of dilapidations can give rise to lengthy and expensive litigation unless steps are taken early to tackle the issues. In recognition of the problems that can arise in relation to schedules of dilapidations and the cost of litigation involving them, the Property Litigation Association is introducing a Pre-Action Protocol. The aim is to try to narrow the issues between the parties and to try to promote early agreement, avoiding the need for the Landlord and the Tenant becoming involved in litigation.

the works to demonstrate that the cost of the works would exceed the section 18 valuation. Similarly if the Tenant relies on section 18 he should provide a valuation.

The Tenant should respond within a reasonable period, which would not usually be more than 6 weeks.

The Tenant’s response should be sufficiently detailed to enable the Landlord to understand the Tenant’s views on each item.

The parties are encouraged to exchange documents at an early stage and to engage in negotiations, and the parties` experts are required to meet on a without prejudice basis, several meetings may be necessary.

The parties should explore the possibilities of mediation or other forms of alternative dispute resolution as a means of resolving the claim.

There is no doubt that the Protocol can bring about the early resolution of disputes concerning terminal schedules of dilapidations. The resultant saving in time and costs is an obvious benefit for the parties. This, and the threat of sanctions against a party who fails to adopt the Protocol, should be sufficient to encourage its use in resolving one of the most difficult areas of dispute in the Landlord and Tenant relationship.

The above is only intended to be a brief summary of the requirements of the Protocol. For more on the Protocol contact our Property Litigation partner John C. Abbott who will be delighted to assist.

John Abbott is a member of the Property Litigation Association

Email:
jca@silvermansherliker.co.uk

Tel: 020 7749 2700