What’s New in Terminal Dilapidations?
- What are the implications of the repair clause in this Lease?
- Is it worth the expense (and delay) of getting a Schedule of Condition prepared before signing?
A terminal dilapidations claim is the landlord’s claim against a tenant for failing to return the premises to the condition required by the Lease at the end of the Lease. It generally covers both the costs of remedial works (subject to various limits) and other losses.
Recent changes to the regime governing these claims mean that it will now be more important than ever (for both tenants and landlords) to be properly advised at the start of the Lease in order to avoid any nasty surprises at the end.
What are those changes?
- On 1 January 2012 the Pre-Action Protocol for Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy (the ‘Dilapidations Protocol’) was formally adopted into the Civil Procedure Rules (“CPR”).
- On 1 April 2013 Lord Jackson’s reforms of the Civil Justice System came into effect.
What Will the Effects Be?
It is likely that the overall effect of the above events will be to firmly push terminal dilapidations disputes out of the Court Room and into the realm of inter-surveyor negotiation.
Versions of the Dilapidations Protocol have been in existence for some time but formal adoption into the CPR will necessitate closer compliance. Where disputes end up in front of the Court, the Court will look in detail at any failure to comply and will have the discretion to make costs orders where appropriate.
At the same time the Jackson Reforms strongly restrict the recovery of disproportionate costs in Civil Proceedings even where the proceedings have been successful (and even where it is accepted that the costs were necessary). This means it will almost inevitably be un-commercial to continue disputes to Court Proceedings when the overall sums at stake are not well in excess of the resulting legal costs.
It will be increasingly difficult to rely on the rule that the successful party will recover at least a substantial part of its legal costs. Where it is considered that those costs have been “disproportionate” they will not be recovered.
How Can We (Still) Help You?
It is now more important than ever that the detailed implications of lease clauses are carefuly considered before the lease is signed. Important clauses include those governing:
- Standard of repair required (and the effect of any Schedule of Condition);
- Extent of demise (and the areas which fall within and outside the tenant’s obligation to repair);
- Obligations regarding the reinstatement of alterations (including lawful alterations); and
- The extent of any statutory obligations transferred to the tenant under the lease;
The Property and Commercial Department at Barrett and Co (Martin Reynolds, Senior Commercial Solicitor and Rob Jefferies, Commercial Solicitor) can provide valuable input on these issues.
Preparation of the “Quantified Demand” (required by the Dilapidations Protocol) also requires careful consideration in order to:
- Take account of the effect of the landlord’s intentions for the property and of statutory caps on the amount of damages which can realistically be claimed (or offered);
- Ensure all appropriate heads of damages are claimed (and that inappropriate heads are not claimed); and
- Properly collate the documentation which is required to accompany the Demand.
The 6th edition of the FRICS Guidance Note, “Dilapidations,” issued on 1 May 2012 – just after the formal adoption of the Dilapidations Protocol – makes it very clear that the Quantified Demand is something very different from the Schedule of Dilapidations and simply serving a Schedule will not be sufficient for compliance.
Where Court Proceedings are still advisable (which will usually be when the other party is reluctant to properly follow the procedural route set out in the Dilapidations Protocol) skillful management of those proceedings will be more necessary than ever. Together with the firm’s Litigation Department we can help ensure that the potential traps created by the new regime are avoided and that an optimal outcome is obtained.
If you would like detailed advice and assistance on any of the issues discussed above please call or email our Commercial Team.