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30 May 2008
Dilapidations Protocol Updated
The Property Litigation Association has issued a revised version of the dilapidations protocol for use in connection with claims for damages relating to the physical state of a property at the end of a commercial lease.The amendments to the protocol have been made to address concerns raised by surveyors about the requirement for surveyors to provide an endorsement of the "landlord's loss".
Background
In July 2000, the Property Litigation Association (www.practicallaw.com/0-106-5632) (PLA) published a draft Pre-Action Protocol for Terminal Dilapidations Claims for Damages. The aim of the protocol was to encourage the resolution of disputes over breaches of tenant repair obligations, without recourse to litigation. The text of the protocol and the form of the schedule of dilapidations annexed to it, were agreed with the Royal Institution of Chartered Surveyors (www.practicallaw.com/1-106-4420) (RICS). The first version of the protocol was formally launched in spring 2002 (see Legal update, Dilapidations protocol (www.practicallaw.com/9-102-2271)). The protocol has no formal status under the Civil Procedure Rules (www.practicallaw.com/0-106-4675). However, it is considered best practice by those working in the property litigation industry and is annexed to the dilapidations guidance issued by the RICS. A second version (www.practicallaw.com/8-204-4017) of the protocol (2006 version) was issued in September 2006. For more information, see Legal update, Revised dilapidations protocol (www.practicallaw.com/3-204-4034). Paragraph 4.8.3 of the 2006 version states that the landlord's claim must contain:
"a written endorsement by the surveyor(s) preparing it that the overall figure claimed is a fair assessment of the landlord's loss".
This requirement has caused concern among some dilapidations surveyors as they feel it is not appropriate for them to provide this type of endorsement.
Summary
The PLA has published a revised version of the protocol: Dilapidations Protocol: 2008 version (Property Litigation Association) (www.practicallaw.com/4-381-7775) (2008 version). The main change in the 2008 version is the removal of the endorsement of the landlord's loss. Instead, the landlord's surveyor must confirm that: - In the surveyor's opinion, the works referred to in the schedule of dilapidations are reasonably required to put the premises into the physical state required by the terms of the lease and any licences or other relevant documents.
- Full account has been taken of the landlord's intentions for the property at, or shortly after, termination of the lease.
- Any costs quoted for works are reasonable.
- The response to the schedule given by the tenant's surveyor should take into account:
- What works, in the opinion of the tenant's surveyor, are reasonably required for the tenant to comply with its covenants or obligations.
- What amount is reasonably payable for those works and what payment is reasonable for any other amounts claimed by the landlord.
- What the tenant's surveyor believes to be the landlord's intentions for the property at, or shortly after, termination of the lease.
The 2008 version also points out that, even if the parties do not instruct surveyors, they should still comply with the terms of the protocol so far as possible. Landlords, tenants and their respective advisers are urged to have regard to: - The common law principles of how loss should be calculated.
- In relation to repairing covenants specifically, the effect of section 18(1) of the Landlord and Tenant Act 1927 (see below).
According to the PLA press release (www.practicallaw.com/1-382-1137), the RICS expects to publish its updated guidance note, which will cross-refer to the protocol, by the end of May 2008.
Comment
Practitioners should be aware that the form of schedule of dilapidations annexed to the 2008 version does not contain the new form of endorsement.
PLC Property spoke to Edward Shaw, a director at Savills and Chair of the RICS working party, who said that it is left to the individual firm to present the schedule or endorsement in their own style, although guidance is given over what each should contain: "In practice, I expect that the endorsement will be included as a preliminary item in the schedule, as this is the part of the process over which the surveyor has most knowledge. Had the endorsement remained in the claim, the surveyor could be asked to endorse information that they had not personally established, or was not within their area of expertise. This was an unacceptable situation and rightly questioned by surveyors." Source
Section 18(1) of the Landlord and Tenant 1927 provides that:
Damages for a breach of a covenant or agreement to keep or put premises in repair during the currency of a lease, or to leave or put premises in repair at the termination of a lease, whether the covenant or agreement is express or implied, general or specific, cannot exceed the amount (if any) by which the value of the reversion (whether immediate or not) in the premises is diminished owing to the breach of such covenant or agreement. No damage shall be recovered for a breach of any such covenant or agreement to leave or put premises in repair at the termination of a lease if it is shown that the premises, in whatever state of repair they might be, would at or shortly after the termination of the tenancy have been or be pulled down, or such structural alterations made as would render valueless the repairs covered by the covenant or agreement. This article first appeared on Practical Law Company website http://property.practicallaw.com/main.jsp on 30th May 2008
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