DILAPIDATIONS SURVEYORS

Chartered Surveyors are the most frequently instructed experts relating to dilapidations claims. The Royal Institution of Chartered Surveyors provides a Dilapidations Guidance Note now in its 5th edition and available to RICS members.

The Guidance Note requires the surveyor to work objectivity and in accordance with the RICS Rules of Conduct. Objectivity and compliance with the PLA Dilapidations Protocol and Civil Procedure Rules are important and any exaggeration or understatement of claim can affect the Courts decision and consideration of costs.

There is no mandatory guidance from the RICS on whether surveyors should be acting as adviser or expert witness. Whilst very few dilapidations claims proceed to the courts and to trial, a surveyor giving evidence is likely to lose credibility if the opponents counsel chooses to scrutinise the conduct of the surveyor and complete objectivity cannot be shown.

Surveyors acting as expert witness are bound by the RICS Practice Statement and Guidance Note Surveyors acting as Expert Witnesses. The practice statement sets out the mandatory duties of a surveyor in providing evidence and the guidance note provides further information on good practice, including: the need for clear instructions and terms of engagement; fees; guidance on what to do in situations of conflict of interest; an outline of the written report format; clarification of the differences between the roles of expert witness and advocate; and the immunity of the expert witness.

Terms & Conditions of Engagement for dilapidations services should be provided to clients in writing and inform the client that there may be additional duties to a court or tribunal to which they may be required to give evidence.

Surveyors are required by the RICS to have appropriate Professional Indemnity Insurance prior to accepting any instructions. Guidance is also provided on working safely particularly in relation to lone working and working in vacant properties.

Surveyors are also expected to advise on the requirement for specialist investigations where these lie outside their expertise. Such matters may include services such as: electrical installations; gas installations; heating systems; air conditioning/cooling systems; fire alarms; security alarms; and computer network systems. The costs of these inspection may not be recovered, particularly if the specialist inspection reveal no significant defects.

DOCUMENT LIST

In order to correctly identify any breaches of repairing liabilities, it is necessary to establish the express covenants contained in the Lease.

However, other documentation may have a significant bearing on the assessment and can include:-

•any licences or other consents for alterations, with plans and specifications;
•assignments and consents to assign;
•side letters or other written agreements;
•any other licences or deeds that address the state and condition of the building and the obligations to maintain it (these might include licences to assign and deeds of surrender);
•any agreement for lease, if intended to survive the grant of the lease;
•any schedules of condition (which may or may not be attached to the lease) or building surveys, together with appropriate photographs;
•schedules of fixtures and fittings; and
•any notices under the Landlord and Tenant Act 1954.

It will also be necessary to confirm the physical extent and boundaries of the property, also known as the demise. This may be detailed in the lease or attached lease plan. Complications arise where descriptions are vague or a the repairing obligations for a single building are split between a number of tenants or shared between a tenant and landlord.

SCHEDULE OF DILAPIDATIONS

Once all relevant documents have been assessed and relevant repairing obligations established, a detailed inspection of the property will be conducted to allow the preparation of the schedule of dilapidations.

This is subject to right of access and necessary permission to enter where the property is still leased to the tenant.

The detailed survey simply records all breaches of repairing obligations with reference to the documents collated as part of the preliminary investigation. The standard of inspection expected is the same as required for a Report on Condition, although the format of the final report is significantly different.

The PLA Protocol recommends a report format that is now widely adopted and standardised. This helps keep schedules concise and clear for all parties to read and understand.

The itemised breaches are listed in a Scott Schedule which allows both parties to the claim to comment on each item and narrow differences a far as possible.

The schedule is also split into Reinstatement, Repairing and Redecoration sections to separate different areas of remedial work for further clarity.

QUANTIFYING CLAIM

If the tenant decides not to rectify any breaches of repairing obligations prior to the expiry of the lease, the landlord is entitled to submit a claim based on the cost of undertaking the outstanding remedial works.

In addition to the cost of the remedial works, this may well include:-

1. The cost of preparing the schedule of dilapidations and the cost of negotiating the claim.

2. Loss of rent and service charge during the period the remedial works are underway.

3. Cost of rates whilst building is unoccupied and undergoing remedial works.

4. Cost of additional insurance whilst vacant.

5. Loss of interest, if applicable, on the cost of carrying out necessary works.

This is usually presented in a Summary of Financial Claim which breaks the total claim down into relevant sub categories of claim.

LANDLORD REMEDIES AT EXPIRATION OF LEASE

Landlords remedies regarding breach of repairing obligations can summarised as follows:-

1. Remedy of the breach of repairs by the Tenant prior to the expiration of the lease.

2. The Landlord carries out all work to remedy the breach of repairing obligations and claims the cost from the Tenant.

3. The Landlord claims the cost of necessary remedial works from the Tenant, but does not carry out the required remedial works.

There are obvious financial implications for the Landlord in relation to each course of action. If the Landlord carries out the work, this will require funding before the cost can be reclaimed from the Tenant.

If the Landlord attempts to claim the full cost of remedial works from the Tenant without intending to complete the work, the claim may be reduced by application of a diminution of reversionary interest valuation in accordance with Section 18 (1) of the Landlord and Tenant Act 1927.

LANDLORD REMEDIES DURING LEASE

Landlords remedies regarding breach of repairing obligations during the lease can summarised as follows:-

1. Enforcement by way of injunction for specific performance, see (Rainbow Estates Ltd v Tokenhold Ltd 1998).

2. Forfeiture is a remedy usually expressly detailed in a lease allowing the Landlord to take possession of the demise where there is a significant breach of repairing covenant by the tenant.

Section 146 of the Law of Property Act 1925 set out the legal framework in relation to forfeiture which has also been constrained by Section 1 of the Leasehold Property Repairs Act 1938.

This limits the landlords rights to forfeiture or remedy of any breach where the lease term is at least 7 years and there are at least 3 years of the term remaining.

The landlord must demonstrate one of the following conditions before proceedings can commence:-

• that the immediate remedying of the breach is required to prevent substantial diminution in the value of the reversion, or that substantial diminution has already occurred;

• that the immediate remedying of the breach is required to comply with enactment;

• that the immediate remedying of the breach is required in the interests of other occupants of a multi-occupied building;

• that the breach can be immediately remedied for a relatively small sum compared with that if the repairs are delayed; and

• special circumstances at the discretion of the court.

3. Right of Entry to Repair.

4. Damages.