The Dilapidations Pre-Action Protocol - the effects

Dilapidations - Have the goal posts moved or is it a new playing field?

The dilapidations landscape has changed with the adoption of the Property Litigation Association Protocol into the CPR.

The History

In 2000 the Property Litigation Association (PLA) and the Royal Institution of Chartered Surveyors (RICS) started the process of formulating a framework where inflated claims and drawn out negotiations would be reduced and litigation avoided. The first edition of the PLA Dilapidations Protocol was published in spring 2002 with a second edition in 2006 and a third in 2008. In spring 2009 the Civil Justice Council recommended that the Protocol be adopted as part of the Civil Procedure Rules; the Protocol was amended and the final edition was adopted as of 1st January 2012.

The Significance

It is a ‘Pre-Action Protocol’ so places Landlords at risk of cost sanctions if the Protocol is not adhered to.

The Landlord’s endorsement – the schedule should be endorsed by either the Landlord or, if prepared by the Landlord’s surveyor, by the surveyor. The endorsement will confirm that the works set out in the schedule are reasonable; that full account has been taken of the Landlord’s intentions for the property and the costings, if any, are reasonable.

The Tenant’s endorsement – the endorsement should confirm, in the opinion of the tenant or the tenant’s surveyor, that the works detailed in the response are reasonable; the costs set out in the response are reasonable and account has been taken of what the tenant or their surveyor reasonably believes to be the Landlord’s intentions.

Our Comment - So far so good – both sides have to be reasonable and there is potentially, should the matter get to court, a cost penalty for unreasonable behaviour.

The Quantified Demand (QD)

This effectively replaces the statement of claim and is much more significant. The QD will “set out clearly all aspects of the dispute, and set out and substantiate the monetary sum sought as damages……as well as any other items of loss for which damages are sought.” So all heads of claim will need to be included as will supporting evidence.

Valuation Evidence

Although the Protocol is clear that, prior to the issuing of proceedings, if either party is to rely on the argument of ‘diminution in the value of the reversion’, then a formal diminution valuation should be produced.

But, in clause 4.5 of the Protocol, there is a requirement that the figures set out in the QD should be restricted to the Landlord’s “likely loss. This is not necessarily the same as the cost of works to remedy the breaches.”
So, when preparing the QD, the surveyor will need to seek valuation advice as to diminution.
Our Comment - This raises the spectre of both additional cost and added complication; where previously negotiations would proceed on the basis of the common law loss, building surveyors will have to seek input from practitioners of the dark art of valuation. Generally speaking we take the view that claims under £100,000 do not warrant valuation advice.

The Protocol also sets out the timescales for various actions. The schedule should be served within a reasonable time, generally within 56 days of lease termination and the tenant should respond within a reasonable period, generally 56 days from the date the QD was sent.

Our Comment - The problem with prescribed periods is that dilapidations cases do not fall into the ‘one size fits all’ category. Where a large schedule is being prepared and there is a requirement for detailed costings, these will need to be based on detailed estimates and a schedule of works may need to be compiled and tendered. Similarly, where valuation issues need to be considered, valuation surveyors will have to consider all the evidence and respond in a timely fashion!

In Summary

In reality the pitch is the same as are the goals – if we are to continue the football analogy perhaps the rules have changed in an attempt to stop some of the ducking and diving. The changes brought about by the adoption of the Protocol are significant and should go some way towards reining in surveyors given to exaggeration. By the same token it offers opportunities for those so minded to use the Protocol as a weapon to either stall proceedings or run up additional costs. We should remember that the number of cases that come to court are minute and that the vast majority or dilapidations cases are dealt with by surveyors with minimal input from the legal fraternity and this is likely to continue.

What the Protocol does underline is the need for specialist advice, from surveyors who have an understanding of property law and legal procedures as well as in depth knowledge of building pathology.