Dilapidations: Repairing the damage

Dilapidations, or the liability for a property’s state of disrepair, has received much attention so far this year. In May, the Property Litigation Association issued an updated version of its Dilapidations Protocol and this week the RICS has published a guidance note on dilapidations.

So why the sudden burst of activity?

At its core is the issue of fraud. More particularly, the exaggeration, or even fabrication, of a landlord’s claims for breaches of repairing obligations by tenants, aided and abetted by the landlord’s surveyor through the schedule of dilapidations. But the surveying profession has decided the time has come to clean up its act and to remind the members of their duty to advance only those claims that they would stand by in a court action.

There is a strong feeling that many dilapidations claims are inflated – not necessarily fraudulently, but perhaps negligently, particularly where due regard for the landlord’s actual intentions for a property at the end of the lease term have not been properly considered.

Section 18(1) of the Landlord and Tenant Act 1927 provides that damages for breach of repairing covenants cannot exceed the diminution in value of the landlord’s reversion that they suffer as a result of the disrepair. Equally, it provides that no damages are recoverable if it can be shown that the property is to be demolished or so structurally altered so as to render valueless

any repairs carried out. It is these scenarios that surveyors may not be properly taking into account, or may be choosing to ignore, that has prompted the current shake-up.

Time and again, tenants are paying for repairs to be carried out after they have left that the landlord never had any intention of doing.

The previous edition of the Dilapidations Protocol tried to address this issue. It contained a requirement for a surveyor to confirm that amounts claimed were a fair assessment of the landlord’s loss. However, surveyors were reluctant to do this, as it effectively required the surveyor to act as valuer. Thus this aspect of the protocol was largely ignored.

many dilapidations claims are over-inflated, not necessarily fraudulently, but negligently

In an attempt to encourage compliance, the latest edition of the protocol provides for an endorsement by the surveyor confirming that in their opinion all the works set out in the schedule are reasonably required; full account has been taken of the landlord’s intentions for the property at or shortly after the termination of the tenancy; and that any costs quoted for works are reasonable.

All of these matters are easily ascertainable by the surveyor from the client or from their own professional judgment and experience.

The RICS guidance note will echo this and serve as a reminder to its members that, although it is not legally binding, the protocol should be used as a good practice guide and to make sure that members ask clients about their intentions for the property, carefully keeping a note of responses on file to protect themselves.

Neither protocol nor guidance note are legally binding, so why would a surveyor commit themselves by signing? It is possible that, with the combined weight of the property sector of the legal profession and the RICS behind it, recalcitrant surveyors will eventually be persuaded to sign.

Resistance will certainly be great at first, as it will be seen as a mechanism for attaching some form of legal liability to surveyor that they would rather avoid. However, if tenants’ solicitors and surveyors begin to reject schedules that are not endorsed and require reasons for the non-endorsement, perhaps gradually the tide will turn.

But will it really mean anything if they do sign? Despite the RICS’ warning to members about the cost consequences of over-inflating a claim, few dilapidations cases ever reach court, so are never subject to such scrutiny. There is no other sanction and surveyors know this. It is commonplace for claims to be negotiated down and the mindset for landlords’ claims, therefore, tends to be the kitchen sink approach.

It will take a radical cultural shift for claims to be presented in any other way. That doesn’t mean that present practice is right and that the approach of the PLA and RICS is not welcome.

If it makes surveyors think twice about following instructions that they are not happy with, it will be a good thing.