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Dilapidations

Guidance Notes

Fifth Edition



The RICS Various Guides

to Good Practice

These are broadly divided into guidance notes, which are to guide, as the name suggests, and practice statements which you must follow. But it’s not quite as simple as that.

The RICS advise us on almost the first page of the DilapidationsGuidance Notes that the Guidance Notes are considered Best Practice and that if allegations of professional negligence are made against the surveyor then the court is likely to take into account the contents of any relevant Guidance Notes.

It then says that in the opinion of the RICS conforming to theseGuidance Notes would at least be considered as a partial defenceagainst any such court action (however caveats this (as all goodsurveyors will)), such is the responsibility of the surveyor to decide if it is inappropriate to follow the Guidelines!



The RICS Guidance Notes divided into 12 very readable sections

As far as guidance notes go we believe these dilapidations ones are very, very readable! So read them!



� Section 1 – Introduction

� Section 2 – Role of the Surveyor

� Section 3 – Taking Instructions

� Section 4 – Lease and Other Enquiries

� Section 5 – Inspection

� Section 6 – Schedule

� Section 7 – Claims at the end of the term

� Section 8 – Claims during the term

� Section 9 – Break Clauses

� Section 10 – Claims against Landlords

� Section 11 – Alternative Dispute Resolution

� Section 12 - Settlement

And we mustn’t forget the Appendices which have examples of Schedules of Dilapidations, Scots Schedules and extracts from legislation, together with PLA Protocol and the CPR (Civil Procedure Rules) Practice.

Sections



1. Introduction

The purpose of this GN is to give practical guidance for RICS Members instructed on dilapidations.

Dilapidations defined as an allegation of breach of contract which is actionable in law.

A resume of what’s in the Guidance Notes is given which also introduces various naming conventions.



2. Role of the Surveyor

Are you appointed as an advisor or an Expert Witness ?

What is the difference?

Reference is made to the surveyor acting with objectivity and within the Rules of Conduct, why?

2.1.4 states the surveyor should guard against exaggeration or understatement, why?

2.1.6 the surveyor should be mindful that dilapidations involve many legal considerations and the surveyor should avoid advising outside the area of expertise – you are a chartered surveyor not a lawyer.



Acting as advisor (not instructed as an expert witness)

2.2.5 An adviser using his or her expertise to prepare or comment on a schedule or a valuation is not an Expert Witness. The Expert Witness Practice Statement (Reminder a Practice Statements you have to comply with) will therefore not apply.

2.2.6 Surveyors should not formalise settlement. Settlements are usually formalised by solicitors.



Expert Witness

� This is a personal appointment where the surveyor’s obligation and duty is to the Tribunal, rather than his or her client

� Briefly stating the obligation of an Expert Witness to any Tribunal is to give objective unbiased evidence.

� Most surveyors are initially instructed as advisers. If the Dilapidations claim then goes to Court they may well be instructed as an Expert Witness, although Dilapidations claims rarely go toCourt,

� Should the surveyor that acted as an advisor be able to step into the shoes of an Expert Witness in Court?



3. Taking Instructions

Generally

Remember the RICS Rules of Conduct

Fees

A widely discussed area should surveyors charge an hourly rate or daily rate or should they be awarded on result, i.e. the money “made” by the landlord or the money “saved” by the tenant.

Take ten minutes in your groupsto discuss and consider how result based payments can cause issues for the surveyor and how hourly rates can mean the client is signing a blank cheque?



4. Lease and Other Enquiries

A very useful section that lists the information that, in an ideal world, you would like to have and in the real world you have to ask for and hope for.

1. Scaled plan

2. Licences or other consents for alterations with plans and specifications.

3. Any agreements for Lease.

4. Assignments and Licences to Assign.

5. Side Letters and other written Agreements.

6. Schedules of Condition, together with appropriate photos.

7. Inventories

8. Schedules of fixtures and fittings

9. Any Notices under the Landlord and Tenant Act 1954

10. Any applications for Consent.

You should check and double check what your client has, what information is available and read it and it’s amazing how much more

information clients will find when they understand the finding of photos can save them thousands of pounds



Particular Lease Clauses to which the Surveyor will refer

Clause 4.5. The 4 R’s:

� Repair� Redecoration� Reinstatement and alterations� Regulations Statutory

Are all defined, as well as demise and yielding up

In brief, a Tenant’s obligations are limited to the property as being demised to it.



Yielding Up

Yielding Up, the giving back of the property in accordance with the Yielding up clause, that may impose a different set of regulations that those set out in the 4Rs. An example is re-carpeting.



Clause 4.6 Recovery of Fees

You need to check how fees are recoverable (particularly as it is your fees that we are talking about!). Often leases will have clauses within them enabling the landlord to claim the fees back for preparing and serving Schedules of Dilapidations.

However, negotiation fees are a completely different matter!



Clause 4.7 Schedules of Condition

(must be attached to a Lease)

It states there is no standard approach for dealing with Schedules of Condition.

Question: Take ten minutes to think of the three advantages and three disadvantages for a standard approach



Lease and Other Enquiries Project Specific (section 18)

1. Current or historical Planning Consents – Section 18(2)?

2. Statutory Notices relating to the property, for example Environmental Health Notice to improve.

3. Original current letting or investment details can be interesting.

4. Very important – the Landlord’s intention for the property at or shortly after the termination of the tenancy –Section 18 (2) Agreements?

5. Evidence of rental values and yields –Section 18(1)



5. Inspection

5.1 Follow the rules set down in the Lease for gaining access otherwise you are trespassing

5.3 Usual to have Individual independent inspections and then joint inspection.

5.4 Scope and standard of repair may depend on the location, for example Covent Garden years ago, when the units were warehouses, would require a different standard of repair to Covent Garden today of retail and leisure area. It also may berelevant to diminution in value and Landlord’s reversion

5.5 Site notes – fully fill them out, including data to allow you to calculate costs, measurements, etc and lots of photographs and sketches as necessary.

5.6 Any specialist consultants required: engineer or quantity surveyor?

5.7 Any further investigations M & E



6. Schedule

Refer to the example Schedule of Dilapidations and Appendices B

or handouts



6.4.1 Costing

The Schedule of Dilaps should be costed if it is anticipated the appropriate remedy is damage. It should be costed with due reference to relevant and appropriate cost information, which is available from a number of sources, not picked out of thin air.

References:

1. Building cost information service data and other recognised pricing books.

2. Relevant and recent tender price information.

3. The result of consultation with and assistance from a contractor,

sometimes requiring the building up of a full specification of works derived from the Schedule of Dilapidations



6.4.2 Broken down into elements recipient of the claim (the tenant and their surveyor can challenge)

6.5 Service. The claimant’s solicitor will usually formally servethe Schedule of Dilapidations.

6.5.2 Dilaps can be served by a surveyor but you should acquire the client’s consent in writing that they are satisfied themselves, via their solicitors, that the formal route is not required.

6.6 A schedule in discussion. Surveyors talk. A useful document for doing this is the Scot’s Schedule. See Appendices D. Dialogue takes place via the Landlord’s comments, the Tenant’s comments and the Landlord’s costs and the Tenant’s costs through the surveyors. This way items that are agreed upon can be eliminated from the discussion.



6.7 Schedule and Proceedings. A Scot’s Schedule will be used in a

Tribunal to show the views of both parties.

6.7.2 Surveyors should be very aware of the wide scope of the court’s

powers on costs under the CPR and where original claims are

exaggerated or original responses understated the offending

Landlord or Tenant, and of course their surveyor, could be at risk of costs against them.



7. Claims at the end of the term

The most common dilapidations situation

7.2 If a lease has ended the only remedy a Landlord can claim for is damages.

7.4 Schedule served by the Landlord in respect of claims at the end of

the term are commonly known as terminal schedules or final schedule.

7.5 Principles of damage.

7.5.1 The Landlord cannot recover more than the loss, the aim is to

compensate an injured party for its loss Not to punish.

7.5.2 Damages can be recovered by one of three ways:

1. The cost of the works

2. The diminution in value of the Landlord’s reversion,

3. A combination of the above.



7.5.5 Section 18(1) of the Landlord and Tenant Act 1927 only applies to repairing covenants. There are two limbs:

� The first limb is that damages recovered for breach of a repair

covenant cannot exceed the diminution of value of the

Landlord’s reversion. Section 18 valuation

� The second limb applies only to claims at the end of a Lease, which provides that no damages are recoverable if a property is to

be demolished, or structural alterations undertaken that would render valueless the repairs will undertake.



7.6 Assessment of loss.

7.6.1 The Landlord’s loss at the termination date of the Lease depends upon

1. The Landlord’s intention for the property.

2. Whether the Landlord has carried out or intends to carry out theworks.

3. Whether the property has potential for redevelopment or refurbishment.

4. The market for the property.

5. What arrangements might be made with a new tenant.

The cost of repair within the Schedule may just be the starting point from which adjustments need to be made. These adjustments are known by various names: dilutive effects, or the most common,

supersession.

7.6.2 Where the Landlord has carried out or intends to carry out all the works that the Tenant failed to complete. The cost of the works could represent the Landlord’s loss, no adjustment might be

required.



This is the usual situation that dilapidations

are negotiated under. The Landlord will

usually not disclose his future intention is.

It is usually up to the Tenant’s Surveyorto carry out investigations. These may be enquiries to see if redevelopment of the property has taken place or discussions with neighbouring properties to see what typical refurbishments and repairs take place.



7.6.3 States that if the Landlord has not done or does not intend to do some or any of the works the cost of the works might not be fair reflection of the Landlord’s loss. Dilapidations is about the Landlord recovering his loss, not making a profit.

7.6.4 An example of this would be if the Landlord intends to demolish the property. Few or no items would remain or be claimable.

7.6.6 Where there are several different methods of undertaking work

the Landlord chooses to take a method that is not the cheapest,

then it could be argued that it doesn’t represent his true loss and the Landlord will be at risk of not recovering the full cost.

Take ten minutes

To consider examples of the above



7.6.7 When the remedial work cannot be undertaken without some

degree of betterment or improvement the full cost will normally

be recovered by the Landlord. This may be limited if there’s an alternative method available.

An example of this would be cast iron guttering in disrepair would be replaced with cast iron. Should it be replaced with aluminium orshould be replaced with plastic? All very different costs, all very different properties.

7.7.1 Where the claim is at the end of a Lease and Property Litigation Association Protocol should be utilised www.pla.org.uk



7.7.2 Civil Procedure Rules (CPR) apply in England and Wales in Civil Courts. This encourages the parties to exchange full information before proceedings are issued. It is a system to avoid litigation, with various pre-action protocols

7.8.1 The Surveyor is reminded that he should look at the Lease(!) and other relevant documents, particularly the yield up clause.

7.8.2 The Surveyor is reminded he should be aware of the intentions of the Landlord. It recommends that this is requested in writing and confirmed in writing.

7.8.3 The Surveyor is reminded to make enquiries with the Local Planning Authority.



7.10 The Schedule

7.10.2 As a claim at the end of the term is a claim for damages costs

are essential. Price the schedule

7.10.4 It is common practice for uncosted Schedules to be prepared

and served by the Landlord and Tenant before the end of the term and then following the expiration of the Lease for a costedSchedule to be served.

The Surveyor should be aware:

1. Different covenants will apply during the term of the Lease and at the end of the Lease, for example the yield up clause could be different.

2. The property should be re-surveyed at the end of the Lease. The condition on your pre-end of Lease survey may be different.



The Schedule should be endorsed by the Surveyor preparing it. The endorsement can be given either by the Surveyor in his or her own name or by the Surveyor signing in the name of the company for and on behalf of the surveyors.

The recommended wording is in the Dilaps guidance notes use them !

7.11 Surveyors endorsement.



7.11.6 Before the Surveyor gives the endorsement if there are any concerns as to the Landlord’s entitlement under the Lease to pursue an item, whether in the body of the Schedule or a consequential loss, the Surveyor should bring the matter to his or her client’s attention, if necessary recommending that advice is sought from the client’s solicitor.

HH Offices dilapidations claim example

QUESTION: What did we do to resolve the matter?

10 MINUTES TO THINK ABOUT THIS



7.12 Consequential losses.

Additional claim costs.

1. Legal fees in connection with the service of the Schedule.

2. Administration of the work envisaged by the Schedule.

3. VAT.

4. Holding costs expected to be incurred before re-letting or sale of the property.

5. Loss of rent until the end of the works and during any additional marketing period as a consequence.

6. Rates liability.

7. Insurance

8. Security, energy, cleaning costs, not already reflected in the building work claim.

9. Loss due to lack of service charge recoupment

10. Financial costs, including interest

11. Preparation of the Schedule (very important to Surveyor)



7.12. Other fees of the surveyors, including fees relating to assessment of rent and diminution in value. However, the ability to claim these losses are specific to each Lease, so you need to read the Lease.

7.14 The Landlord’s initial pre-action claim for damages, usually served on the Tenant by the Landlord’s solicitors.

7.15.1 The response. The standard of behaviour required for a Surveyor when acting for the Landlord or the Tenant is the same.

7.15.2 The Protocol recommends the Tenant responds within 56 days.

7.16 Scot’s Schedule from the Tenant’s point of view.

QUESTION: What is the difference?



7.17 Dialogue.

Because of the high costs involved with court action ‘it should be the parties’ objectives, as well as the courts, that the matter be settled instead of tried, if at all possible.’

7.18 Physical work -v- Damages (for the tenant)

There may be advantages for the Landlord and the Tenant carryingout the work before the end of the term. It will allow the property to go back onto the market more quickly. However, for example in ahigh street shop location the trading loss may be greater than the dilapidations claim.

QUESTION: Take 10 minutes to consider what are the

advantages of the Tenant carrying out the work.



ANSWER:

1. They will control the actual weeks it is carried out on

and the timetable and the cost

2. They will avoid a claim for loss of rent and interest, and

3. They might be able to recover VAT

QUESTION: Take 10 minutes to consider what are the

advantages of the Landlord carrying out the work and getting

a monetary settlement.



8. Claims during the term, known as interim claims

8.2 The remedies available to the Landlord and interim claims are:

1. Damages

2. Forfeiture

3. Entry to carry out the work, followed by a claim for costs,

4. Specific performance

8.4 Specific performance is beyond the scope of the Guidance Notes, as it is very specific to various legal cases and is rare.

8.5 NOTE The PLA Protocol does not apply to claims during the term.



8.6 Damages.

8.6.1 The Leasehold Property (Repairs) Act 1938, known as The 1938, will apply to a Landlord’s claim for damages during the term if the Lease was granted for a term of seven years or more and three or more of the term remain unexpired.

8.6.2 Landlord serves the Notice under Section 146 Law of Property Act 1925. The Tenant serves a Counter Notice within 28 days.

8.6.6 In reality where the Lease has some time to run the Landlord may find it hard to have a Section 18 argument for diminution invalue, unless this one property is devaluing or endangering other properties the Landlord owns by the Tenant’s breaches.

8.7. Forfeiture



8.7. Forfeiture. Forfeiture is where the Lease is brought to an end.

8.7.2 There are certain rules that apply to this:

1. The Lease must contain a forfeiture clause!

2. The Landlord has served a valid Notice.

3. A reasonable period of time has expired since the service of the Notice.

4. The Tenant has not complied with the Section 146 Notice.

8.7.3 Shows the strength of the Tenant’s position. If the Landlord serves a 146 Notice and the Tenant serves a Counter Notice within 28 days the Landlord will have to get the permission of the court for the forfeiture of the Lease.



8.8 Entry to undertake remedial works.

8.8.1 Affectionately known as the Jarvis -v- Harris clause. This is a pre-eminent legal case. Most leases contain clauses relating to the Landlord having access to the property.

8.8.3 Advises extreme caution when using these clauses, as incorrect application by a Landlord can lead to Counter Claims with the Tenant for trespass and breach of quiet enjoyment. It is therefore strongly recommended that legal advice is obtained. As a surveyor we wouldn’t dream of dealing with this without legal advice.

8.8.6 If at the end of the designated time period the Tenant has not undertaken the work set out in the Landlord’s Notice (a Landlord’s Notice is a form of a Schedule of Dilapidations) the Landlord isentitled to enter the property and undertake the property himself.



8.8.7 The Landlord’s costs are recoverable as a debt (not as damages).

Take 10 minutes out to understand the difference.

There may also be a clause in the Lease recoverable as liquidated damages.



9. Break Clauses

9.1 Many Leases contain clauses giving either the Landlord or the Tenant the right to determine the Lease before the end of the contractual term. These are known technically as options to determine or, more commonly in the surveying world, break clauses.

9.2 Recommends legal advice when dealing with a break clause.

9.7 Instructions, lease enquiries and inspection.

9.7.1 It is strongly recommended that a Surveyor, on being instructed in connection with a break clause, reads the Lease. It advises thatmany negligent claims and actions have arisen from professional advisers failing to spot items in the Lease, such as time limitations or conditions of the Lease that are not met to evoke the break clause.



9.7.2 Understand your client’s objectives with regard to the break clause.

9.8 Schedule. A Surveyor can be instructed to produce a Schedule in connection with a break clause. This work can be for the Landlord to advise the Tenant as to the works required. This, in our experience, can be a warning shot to ensure that they keep the Lease.

Take 10 minutes to think about this.



10. Claims Against Landlords

10.1 The Landlord can also have obligations within the Lease, although these are rare, in our experience. They might also have obligations that are implied by Statute or common law.

10.3 It is recommended that any Notice by the Tenant to the Landlord is in writing. Although this seems obvious we are aware of cases where the Landlord and Tenant get on so well a phone call has been used, which has resulted in long term problems.

10.5 Remedies. The Tenant can remedy the problem:

1. By damages

2. By self-help, and

3. By set off



Damages. The amount of damage to which a Tenant is entitled to is that which so far as money can will put the Tenant in a position of which he or she would have been breached by the Landlord.

Self-help. The Tenant carries out the work and seeks to recover the costs from the Landlord.

Set off. This is deduced from the rent and other sums payable to the Landlord under the Lease.

10.6 Instructions, documents and inspections. When instructed by a Tenant to make a claim against the Landlord the Surveyor will follow similar procedures to those set out previously.



11. Alternative Disputes Resolutions11.1. The majority of disputes are resolved between

the parties. The advent of CPR and the Protocol has increased the number of disputes resolved in this way. Disputes that can’t be resolved will be resolved

by litigation.

ADR may include mediation, independent expert

determination and arbitration.

Arbitration is where the Award is made by the

Arbitrator based upon the evidence by the parties or obtained by enquiry.

Independent Expert is a resolution determined by an expert in the field and the expert is never obliged to receive or even consider any evidence by other parties as the Lease so requires or the parties agree.



The Independent Expert’s decision is known as Determination and is final and binding and there is no right of appeal. However, the Independent Expert can be held liable in damages for any losses saved by a party through the Expert’s negligence.

Mediation. This is resolution of the problem through agreement.

1. No decision has be imposed upon the parties by the mediator and the mediator won’t express any personal view.

2. During mediation parties are able to freely discuss the strengths and weaknesses of their case.

3. The mediator will encourage and help the parties to generate and consider their options.

11.7 The RICS Disputes Resolution Service



12. Settlements

Reiterates that most claims do not end up in court.

12.2 If a claim is determined by court or ADR (other than mediation) the successful party will have a Court Order

Award or Determination, which can be enforced by the Court.

12.3 If resolved by mediation then the parties must record

the terms of the agreement precisely.



Appendices

Appendix A. PLA Protocol

Appendix B. Example of Schedule of Dilapidations

Appendix C. Recommended form of a Scot’s Schedule.

Appendix D. Example of a Scot’s Schedule

Appendix E. Value Added Tax

Appendix F. Extracts from legislation

Appendix G. Paragraph 4 of the CPR Practical Direction of Protocol

The Appendices is about five to ten millimetres thick of the RICS Guidance Notes.