The Birth of a New Protocol
On 1 January 2012 the Dilapidations Protocol (officially entitled Pre-action Protocol for Claims for Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy) came into effect as part of the Civil Procedure Rules (CPR) following a gestation period almost as long as its new title.
Pre-action protocols are intended to ensure that court proceedings are a last resort to the resolution of disputes and arose out of the reforms of Lord Justice Woolf culminating in the CPR in 1998. There are now 10 Protocols which are tailored to specific types of dispute.
Since the first draft was launched by the Property Litigation Association back in the spring of 2002, the dilapidations protocol has been used by surveyors and lawyers and adopted as the industry standard for dealing with dilapidations claims arising at the end of a tenancy of commercial premises. Formal adoption will undoubtedly give it greater force. There is now an increased likelihood of adverse costs consequences for those who choose to ignore its principles.
The protocol covers disrepair and also redecoration at the end of the term of the lease. It requires the landlord’s claim document to set out and substantiate the monetary sum which he is making. It should be accompanied by a separate schedule setting out the details of what the landlord considers to be a breach of the lease, the works required to remedy the breach and a costing for the works.
The claim letter and schedule should be served not later than 56 days after the expiry of the lease. If served before expiry the landlord is required to confirm that they remain valid as at the end of the lease; if not, a new schedule must be served within a reasonable time.
It is not necessary to serve a section 18 (Landlord and Tenant Act 1927) valuation at the outset with the claim letter and schedule as it was felt that this would make the procedure unnecessarily “front loaded” in terms of costs. However the landlord’s surveyor is required to endorse the claim by confirming that the overall figure is a fair assessment of the landlord’s loss.
The tenant’s response, to be added to the schedule prepared by the landlord, should be given within 56 days of receipt of the landlord’s quantified claim. The major change to the protocol in its adopted form is the introduction of an endorsement by the tenant’s surveyor. The inclusion of the endorsement caused much debate leading up to the final draft of the protocol but it was felt that this would provide a sensible balance and ensure that a tenant’s surveyor does not propose a cost for the works which is lower than he considers to be reasonable or omit necessary works.
The surveyors for the parties are encouraged to meet as often as is necessary to discuss the claim with a view to reaching agreement or at least narrowing the issues in dispute. If a meeting has not taken place before the tenant’s response is given the protocol suggests that a meeting should take place within 28 days of the response, preferably at the subject premises. If no settlement is reached by negotiation the parties should take time to evaluate their positions, identify the issues in dispute and the evidence that will be required to address those issues before incurring further costs and commencing court proceedings. They should also consider alternative means of resolving the dispute e.g. mediation.
Unless the landlord has carried out all of the works a section 18 valuation should be served before proceedings are issued.
Although the court will not be concerned with minor technical breaches of the protocol, if a party has not complied in substance with the relevant principles they may be penalised by an adverse costs order.
There is no doubt that the protocol has already had the effect of reducing the number of exaggerated claims and can, therefore, be judged to be a success. It is a great shame that it has taken so long to get this approved by the various bodies that need to bless a protocol before it can be formally adopted as part of the CPR. However it is now with us and due to be included in the next supplement to the CPR. In the meantime a copy can be found on the Property Litigation Website www.pla.org.uk. The RICS will shortly be publishing an amended guidance note relating to it.