Dilapidations

Question 1

What are Dilapidations?

Answer 1

The claim made by a landlord against their tenant due to the condition of the property during or at the end of the lease period, for the cost incurred in addressing the tenants breaches of lease.

Question 2

What is a break clause?

Answer 2

A clause permitting either the landlord or tenant to terminate a fixed-term lease early by serving notice on certain pre-agreed dates as stated within the lease.

Question 3

What are the different types of dilapidations survey?

Answer 3

Interim Schedule – served by the landlord or the tenant during the lease, with at least 3 years remaining.

Terminal Schedule – served at or after lease expiry/break clause date when the tenant is out of the occupation and the landlord wants to claim damages.

Dilapidations Assessments

Question 4

What is Limb 1 of the Landlord and Tenant Act 1985?

Answer 4

Limb 1: refers to diminution of the landlords reversion - damages for the breach of the repairing covenant shall not exceed the amount by which the value of the premises is diminished owning to the breach.

Question 5

What is Limb 2 of the Landlord and Tenant Act 1985?

Answer 5

Supersession: No damages shall be recoverable if the premises are to be significantly altered to such an extent that they render the repairs valueless.

Question 6

How is diminution calculated and a settlement reached?

Answer 6

The difference between the valuation of property in a compliant state and the valuation of a property in its actual condition at lease expiry. The diminution figure is then compared to the common law claim and the lower of the two figures forms the correct measure of damages.

Question 7

How can you go about limiting a dilapidations claim?

Answer 7

Firstly, review the lease covenants to assess the tenant’s liability.

Assess the costs for exaggerated items.

Also determine any possibility for using s18 arguments.

Question 8

What is the Dilapidations Protocol?

Answer 8

It describes the conduct the court expects the parties to follow before commencing legal proceedings in relation to a dilapidations claim.

It sets out a process and timetable for the exchange of information and establishes standards for the content and quality of schedules of dilapidations and quantified demands.

Question 9

What are the aims of the dilapidations protocol?

Answer 9

Encourage the exchange of early and full information about the dispute.

Enable the parties to avoid litigation by agreeing a settlement before proceedings are commenced.

Support the efficient management of proceedings where litigation cannot be avoided.

Question 10

What are the time limits set by the dilapidations protocol?

Answer 10

A dilapidations claim should be served within a ‘reasonable time’, which it suggests will generally be not more than 56 days after the end of the lease.

The tenant must respond to the claim again within a reasonable time, usually not more than 56 days.

Question 11

Provide examples of consequential loss?

Answer 11

• Legal fees in connection with the service of the schedule
• Administration of the works
• VAT
• Loss of rent
• Loss of service charge
• Preparation of schedule / surveyors fee

Question 12

What is a quantified demand?

Answer 12

Intended to set out the landlords terminal dilapidations claim.

• Sets out monetary sum sought as damages
• Sets out whether VAT applies
• Sets out date (being a reasonable time) by which the tenant should respond. Usually 56 days.
• invited the tenant surveyor to meet on site.

Question 13

What are the key clauses that you might look for within a lease?

Answer 13

• Reinstatement
• Repair
• Decoration
• Statutory obligations
• Yielding up

Question 14

Are you aware of any case law surrounding dilapidations cases?

Answer 14

Proudfoot vs Hart

‘Good tenantable repair’ - such as repair as having regard to the age, character and locality of the property as would make it fit for occupation of a tenant of the class who would be likely to take it.

Question 15

What it contained within a dilapidations schedule?

Answer 15

Schedules of Dilapidations record alleged breaches of covenant and therefore generally contain details of the
contractual obligations alleged to have been breached.

Question 16

What should the surveyor make clear in their fee proposal?

Answer 16

If engaging specialists as sub-consultants

Which specialists are likely to be required

If the surveyor is allowing for any reinspection such as at lease end

Is the surveyor allowing time to meet with the tenants surveyor

What is the prosed fee arrangement

Question 17

What documents might your need to review as part of the dilapidations process?

Answer 17

Lease

Head or sub-lease

Scaled plans

Licence for alteration

Reinstatement notices

Schedule of condition

Planning records

Statement of the landlord’s intentions

Question 18

What is usually contained in Scott Schedule?

Answer 18

detail of documents relied on

Itemised numbers for reference

relevant clause of the lease

alleged breach

remedy required

Cost of the remedy

Question 19

What is usually contained in Scott Schedule?

Answer 19

detail of documents relied on

Itemised numbers for reference

relevant clause of the lease

alleged breach

remedy required

cost of remedy

Question 20

Where would you find reliable cost information?

Answer 20

Invoices following completion of remedial works

The results of competitive tender exercises

Price book data - BCIS

advice of a quantity surveyor

Question 21

What remedies are available to a landlord pursuing a claim during the term?

Answer 21

Interim schedule served as a repairs notice - effectively acts as a service charge, not damages.

s.146 notice (forfeiture) - Notice stating the condition that the tenant is in breach of. If the tenant does not address the breach the landlord can terminate the lease.

Repairs notice (Jervis v Harris clause) – if the lease permit and where the tenant is in default of their obligations.

Court order specific performance

Question 22

How does a s.146 notice work and what must it include to be valid?

Answer 22

It is a notice served under section 146 of The Law of Property Act 1925 by a landlord to their tenant to terminate a lease early due to a breach of the terms of the lease.

There need to be a right to forfeiture explicitly set out within the lease.

It must specify details of the breach of lease and the remedy.

It must set out a time for remedying the breach. The landlord must give the tenant reasonable time to fix the breach.

Typically these notices are very prescriptive and should be drafted by a solicitor.

Question 23

When are s.146 notices typically issued?

Answer 23

Tennant making alteration without consent

non-payment of service charge

Non-payment of lease

Repairing obligation

Question 24

What is a Jervis and Harris Clause and when might it be used?

Answer 24

Used as an interim remedy.

The landlord serves a repairs notice on the tenant and a timeframe within which they should be completed.

If the tenant does not comply with the repair notice served by the landlord then they have the right to enter the property to undertake the repairs which can then be recovered from the tenant as a debt.

As a debt not damages the landlord does not need to evidence their loss.

Question 25

How do you prepare a schedule of dilapidations?

Answer 25

Review all the lease documentation provided with regard to the relevant lease clauses

Inspect the property recording breaches and taking photographs and measurements to allow accurate quantification.

Develop a scott schedule itemising each breach referenced to the appropriate lease clause, the works required to remedy the breach and a value for undertaking the works.

Serve the schedule on the tenant in compliance with the dilapidations protocol.

Question 26

Can you as a surveyor serve the schedule of dilapidations?

Answer 26

No. This is typically undertaken by the clients solicitor.

Question 27

What is a schedule of condition?

Answer 27

Typically a photographic record stating the condition of the property at lease commencement with the intention of limiting the tenants liability under the lease,

Question 28

When might you use ‘without prejudice’?

Answer 28

Only when there is a dispute.

Question 29

What is included within a quantified demand?

Answer 29

A figure for the landlord likely loss

Question 30

Why do tenant undertake dilapidations assessments?

Answer 30

As part of financial reporting, companies are required to make accurate provision for future liabilities.

Consideration of exit strategy, to understand their liability at least end in the event that they leave the property.

Question 31

How would you set out a schedule in accordance with the dilapidations protocol?

Answer 31

A schedule separating out the various breaches of covenant with costs against each item.

Surveyors endorsement

Quantified demand

Question 32

Why are the landlords intention important?

Answer 32

Play an important role in determining any claims for supersession.

Question 33

Why would a landlord serve a dilapidations schedule during the term?

Answer 33

To start a dialogue

To serve as a notice of reinstatement

Question 34

What should you provide when acting as the tenants surveyor in response to the schedule?

Answer 34

Tenant endorsement

Scott schedule response

information to support your response.

Question 35

Prior to litigation, what should be undertaken?

Answer 35

Stock take meeting to confirm that a settlement cannot be resolved.

Question 36

If the dispute cannot be resoled, prior to litigation, what should be undertaken?

Answer 36

Stock take meeting to review their positions and see if legal proceedings can be avoided or at least the outstanding issues narrowed.

Question 37

How can the landlord evidence their claim?

Answer 37

Undertake the works

Specialist valuation

Question 38

What are the consequences of not following the protocol?

Answer 38

There are two judgement made

• Damages judgement - for dilaps
• Costs judgement - decision on who will pay the costs. This will be decided on the basis of who won, part 36 offers, and the conduct of the parties.

Question 39

What is the consequence of not following the guidance?

Answer 39

You can be sued for negligence.

Question 40

What is the legal framework for the dilapidations protocol?

Answer 40

The Civil Procedure Rules which provide a unified code of procedure that apply to all court proceedings in England and Wales

Question 41

What are the contents of a dilapidations report?

Answer 41

Preambles setting out context

Surveyors’ endorsement

Summary of tenant’s covenants

Scott Schedule – stating remedial works required to comply with the lease

*Quantified demand

Question 42

What does the surveyors endorsement confirm?

Answer 42

• all works set out are reasonably required to remedy the breach
• full account has been taken of the landlords intentions.
• the costings are reasonable

Question 43

What is the procedure if a dispute arises during a dilapidations claim under the protocol?

Answer 43

Assuming negotiation has failed, the parties should meet to undertake a stocktake meeting to narrow and define the areas of disagreement on a without prejudice basis.

The parties must then agree on the ADR route they wish to pursue, these could include:

• independent expert determination
• mediation
• arbitration

Question 44

What is a lease?

Answer 44

A contract outlining the terms under which one party agrees to rent property owned by another party, setting out their rights and obligations under the agreement.

Question 45

What is a full repairing and insuring lease?

Answer 45

Under an FRI lease, the tenant is responsible for the cost of all repairs and insurance, either directly or through a service charge.

Question 46

What is an internal repairing lease?

Answer 46

An internal repairing lease is where the tenant is responsible only for internal repairs and decorations, the landlord being responsible for external and structural repairs and insurance.

Question 47

What is vacant possession?

Answer 47

The property must be empty of people.

The purchaser must able to assume and enjoy immediate and exclusive possession, occupation and control of the property.

The property must be substantially empty of chattels, i.e. any chattels left in the property do not substantially prevent or interfere with the enjoyment of the right of possession of a substantial part of the property.

Question 48

When might an interim schedule be used and how does it work?

Answer 48

Interim remedy available to the landlord.

It is similar to a scott schedule stating the breaches and remedies but does not provide costs. Instead it requests that the tenant undertake the works.

It is perhaps the least provocative interim remedy available to landlord and can start the process to limit the landlords liability in the event that the tenant goes into insolvency prior to the end of the lease.

Question 49

What happens if the tenants does not carry out the works set out in the S.146 notice?

Answer 49

If the tenant does not undertake the works the lease it forfeited.

Question 50

What is a specific performance and when might it be used?

Answer 50

It is when the courts order the tenant to undertake works. To be granted damages must not be an adequate remedy, works must be sufficiently identified and equitable. It is mostly used for disrepair.