It has been over 12 months since we held a dilapidation seminar at Fraser Brown with our guest speaker Martin Hutchings QC of Wilberforce Chambers.
Since that date, dilapidations claims have continued to occupy a prominent place in my workload and I continue to be involved in a number of high value and difficult cases in the High Court, especially the Technology and Construction Court. In all cases I have had the benefit of expertise from valuation and building surveyors in preparing dilapidations schedules, negotiations and expert witness reports on costs and section 18.
It is always important to have a good working relationship with surveyors in all capacities, either working directly for the client or as independent expert witnesses.
I don’t expect the number of difficult claims to decrease as the commercial property market and particularly the retail sectors continue to struggle to make ends meet.
On the one hand, tenants do not have the resources to meet what appear to be over inflated claims and on the other hand, landlords need to protect the value of their property assets.
The much used Dilapidations Pre-action Protocol was adopted by the Courts as an official protocol on 1 January 2012. The published protocol take a similar form to that already in use, apart from various changes that have been made to the adopted protocol, so that it is in compliance with the general criteria for protocols already in use.
The protocol is now shorter, as several provisions have been summarised. However, the substance of these provisions has not been changed.
Some terminology in the protocol has been changed, so it is not confused with terminology used elsewhere in the CPR. For instance:
'Landlord's claim' has been changed to 'Quantified Demand' to differentiate the claim made out in the schedule of dilapidations from a claim made in a statement of case under the CPR.
'Serve' has been changed to 'send' to differentiate giving the Quantified Demand to the tenant from serving court proceedings. The Quantified Demand should be given to the tenant in accordance with the service provisions in the lease. Service of dilapidations schedules needs to be done at an earlier stage and preferably by a solicitor so that the pre-action protocol can be instigated at an early stage. This action will get the clock ticking and help to avoid one or other party time wasting.
The Courts continue to grapple with section 18 valuations and what is the correct test to apply. The court’s preferred formula for calculating diminution is to value the premises in and out of repair and to compare the two valuations.
In valuing the property, the valuer is encouraged to adopt the hypothetical purchaser approach where the purchaser is either an investor or investor developer.
However, there may be a situation that does not readily lend itself to this scenario and a valuer should always consider if another type of purchaser is appropriate e.g. an owner occupier purchaser. If the valuer opts for a different approach to what the court would normally expect then the valuer will need to persuade the court why this should be the case.
The valuer should always be minded of the actual cost of the works and liaise closely with the client’s building surveyor.
Dilapidation cases are increasingly being fought in the Technology and Construction Court (TCC), a specialist commercial court. The TCC can be found at certain County Courts such as Nottingham, Birmingham, Manchester, London for lower value claims of less than £50,000 - £75,000 and also at the High Court (both at District Registries and the Royal Courts of Justice in London). Because the courts are specialist, the Judges expect a high level of knowledge from those conducting case and from the parties’ experts. The TCC will expect to see proper management of cases by lawyers and reports and joint statement from experts to follow a specific format.
Don Peel of Fraser Brown works with many of these specialists and can also direct those experts less familiar with the stringent requirement of the Court
- Recovery of surveyors costs are usually limited to preparation and service of dilapidations schedules. Negotiation by surveyors and other professional fees are claimable as damages and not a contractual obligation. It is important to understand what a lease says about recovery of professional fees.
- Schedules should be in a prescribed form, setting out the lease detail, the terms the landlord is relying on in his claim, an item by item schedule of breaches cross referenced to the relevant lease term and costings. The schedule should allow for the addition of unknown costs such as contract administration fees, professional fees interest and loss of rent at a later date.
- A schedule can be up-dated as the claim progresses and as new items of dilapidations come to light.
- Negotiations should be held on a without prejudice basis and court proceeding may become necessary and should not be avoided once negotiations between surveyors break down.