Dilapidations...What Dilapidations?!

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 Property Litigation Association Protocol on Dilapidations is intended to reduce the scope for argument. It is not compulsory to use the Protocol, but failure to materially follow the Protocol may result in the party at fault suffering cost 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 of an agreement as possible.

Some of the main points of the Protocol are:

• 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 the 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.

Arguments can abound regarding the correct interpretation of the tenant’s repairing obligations, followed by argument over whether the tenant has failed to meet these 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 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 this.

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 promote early agreement, avoiding the need for the landlord and tenant becoming involved in litigation.

The landlord should 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 six 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. The parties` experts are required to meet on a without prejudice basis, and 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.
• And finally, the best advice that can be given is to talk. If you are a tenant and you receive a schedule of dilapidation, be positive in trying to agree at an early stage what needs to be done and the standard of the work, and then do it before the lease comes to an end. Give the landlord’s surveyor a chance to inspect the work. This should prove less costly in the long run.

Dilapidations claims usually involve complex issues, including the interpretation of the lease, the impact of legislation and the landlord’s future intentions for the building. Taking specialist advice is imperative.

John Abbott is a member of the Property Litigation Association

For further information, please contact John Abbott on 020 7749 2700 or at jca@silvermansherliker.co.uk.