The RICS Dilapidations Guidance Note will be issued soon. Bartle Woolhouse and Vivien King argue that landlords and tenants should refrain from exaggerating claims and inappropriate defences. Illustration by Nick Cronin
The fifth edition of the RICS Dilapidations Guidance Note will be published at the end of the month. Historically, this area of law has led to numerous examples of overstated claims and inappropriate defences.
A sad state of affairs
All too often, landlords, armed with their tenant’s covenants to repair, reinstate and decorate, were provided by their surveyor with a schedule of dilapidations that had little or no regard to the meaning and effect of those covenants. To make matters worse, their intentions for the premises at, or shortly after, the end of the term are often not made plain, in the knowledge that to do so could render valueless some or even all the works included in the schedule.
Conversely, tenants, armed with section 18(1) of the Landlord and Tenant Act 1927 and the common law on loss, would request surveyors to put up spurious arguments to the effect that any hypothetical landlord would carry out works of refurbishment and modernisation that would render valueless the works listed in the schedule, when, in reality, such a scenario is unrealistic. Sadly, some lawyers have added fuel to the fire.
The time has come for the parties to argue within the forum of real and supportable claims and defences. It is also time for advisers’ professional objectivity, highlighted by the guidance note, to come to the fore.
The guidance note relates to commercial property and offers a guide to good practice to the surveyor working in dilapidations – be it in respect of an interim claim (namely where a schedule is drawn up during the term of the lease) or a terminal claim (that is where a schedule is drawn up, in anticipation of or after the end of the term). It should be noted that the PLA protocol (see p166) relates only to a terminal schedule.
Lord Woolf, when composing the rules of procedure to be followed in the civil courts of
This includes conduct before and during the proceedings, how a party has pursued or defended its case and whether a claimant in whole or in part has exaggerated its claim.
Presuming that a claim for dilapidations will rarely go under the scrutiny of a judge (most cases settle out of court), many parties and their advisers have ignored this threat (costs can often outstrip the claim) and battled on with their exaggerated claims and defences, thereby increasing the costs payable by the parties. The guidance note provides a timely reminder about the nature of the legal framework within which the parties should be operating.
The guidance note also gives a checklist for a surveyor instructed on a dilapidations claim. It reminds the surveyor, before the schedule of dilapidations is prepared:
? of the need to clarify with the client terms and conditions of engagement
? from whom fees are recoverable
? that a claim is based upon the wording of the relevant lease and other relevant documents (for example, a licence to alter or deed of amendment) and
? to check compliance with the contractual terms of the lease in respect of inspecting the premises.
In preparing the schedule, the surveyor must focus on the claim. With terminal schedules, the landlord’s only remedy is a claim in damages against a defaulting tenant. Surveyors are reminded that the starting point is the cost of the works for which the tenant is responsible under the terms of its lease and that have been left undone. If the landlord has done or intends to do those works (and only those works), it is likely that the cost of the works will accurately reflect the landlord’s loss.
If, however, the landlord has not done and does not intend to undertake some or any of the works, its loss may reflect other issues. For instance, it may intend to conduct a major refurbishment of the premises, which would render valueless the works for which the tenant might otherwise be responsible.
In that case, the valueless works should not be included in the schedule. As the guidance note states, if the landlord intends to demolish the property, few or no items will remain. Each case will turn on its own facts, but it is in this area that most landlords exaggerate their claims.
The protocol also becomes relevant for a terminal schedule of dilapidations. As stated above, this is addressed on p166, but it is worth just mentioning the endorsement to be given by the building surveyor.
In providing the endorsement, the building surveyor is placing his professional credibility on the line. He will therefore need to ensure that he has constructed the schedule with due and proper regard to the lease covenants (and any other relevant tenure documents), has costed (if relevant) the remedial works appropriately and has taken reasonable steps to establish his client’s intentions for the building or demise at, or shortly after, the end of the term. With regard to the latter, it is important to make a written note of discussions with the client.
The guidance note addresses claims made during the lease term (that is based upon an interim schedule) and the landlord’s potential remedies. These extend beyond a claim in damages to include forfeiture of the lease, entry to carry out the remedial works followed by a claim for the costs incurred and a claim of specific performance. The note states that the latter remedy is beyond its remit but advises about the other reliefs (again, concentrating on excluding exaggerated claims). Surveyors are reminded that statutory requirements may be relevant.
The guidance note also addresses break clauses, thereby underlining the importance of complying strictly with the specified terms of each clause and of working in conjunction with the client’s lawyers.
Finally, the guidance note deals with the less frequent claim: that of a tenant against a landlord. It reminds surveyors that, in general, a tenant cannot enforce a landlord’s covenant unless the tenant has first given the landlord notice of the breach. Again, practical advice is proffered.
What else?
Much more is included in this latest edition of the guidance note. For instance, a short annexation concerns a claim to reflect a landlord’s loss in respect of unrecoverable VAT. It also considers preparation of the schedule, with examples, alternative dispute resolution and settlement agreements. Although short and not intending to replace a detailed textbook, the guidance note is a good checklist and a guide to good practice.
It is hoped that the main effect of this new edition of the guidance note will be to reduce the ambit of exaggeration in claims and defences. The note will not, as has been suggested, remove the surveyor’s rights in respect of negotiation. What it will do is concentrate surveyors’ minds on the real issues concerning dilapidations, since real issues continue to arise.
The guidance note is available at http://www.ricsbooks.com/productInfo.asp?product_id=17312
Bartle Woolhouse is a partner at Malcolm Hollis and Vivien King is a consultant to Bond Pearce LLP
