Warehouse Dilapidations

Schedules of Condition (SOC) are factual records of the condition of a property, normally prepared for legal or contractual reasons. Schedules of Condition can be prepared for either residential or commercial buildings. Schedules of Condition create a complete record of the condition of the property on a particular date that can be used as a benchmark against which its condition can be assessed in the future and any changes identified. Schedules of Conditions may be prepared under the instruction of a landlord, a tenant, an employer, a contractor, or a neighbour. Appointing an independent expert to prepare a schedule of conditions gives unparalleled weight if there are subsequent claims or negotiations. It may be beneficial to seek the agreement of the other party that the schedule is a fair reflection of the condition of the property when it is prepared. It is important to recognise that identifying a change in the condition of a property does not necessarily attribute blame for that change. Schedules of Condition (SOC) are a useful tool for landlords and tenants, but this depends on the information contained. All too often roofs are missed, boilers not tested, photographs are poorly ordered, and descriptions too generic, causing the Schedule of Conditions to be unfit for its purpose. Whether a landlord or a tenant, Vantage Building Consultancy understands the commercial application of a Schedule of Conditions and our template can be adapted to suit bespoke needs. Our focus is on meeting our client’s brief so you can be assured that once instructed we always have your best interests in mind.

Dilapidations are an essential litigious process and the vast case law in the UK meant that on 1 January 2012 the Dilapidations Protocol was introduced and adopted as a formal pre-action protocol under the Civil Procedure Rules to reduce disputes. The Dilapidations Protocol, a pre-action protocol by the Property Litigation Association, relating to dilapidations claims for damages against tenants at the termination of a tenancy, was first published in 2002, with the aim of preventing landlords from exaggerating claims and leading the way for early settlements without the involvement of the courts. The second edition, issued in 2006, aimed to reduce costs by recommending diminution valuations, and was considered just before the issue of proceedings. The third edition, issued in May 2008, required the landlord’s surveyor to sign an endorsement confirming, amongst other things, they had followed the protocol. From 2008 to 2011 the PLA and the Royal Institution of Chartered Surveyors (RICS) worked with the Civil Justice Council to refine the wording of the Protocol ready for its adoption. A positive tool? Yes, but also one used to beat others with the protocol should be used and not abused as many do.

A Section 18 (1)Valuation provides a statutory cap for damages, by calculating the difference by which the value of the landlord’s interest has been reduced on account of the breaches of the lease covenant. This is otherwise known as the ‘diminutionin value’ of the landlord’s interest. Where a building is in disrepair at the end of the term, Section 18 (1) of the Landlord and Tenant Act, 1927, limits the landlord’s claim for damages for breach of a repairing covenant. Other breaches are covered by Common Law Principles usually related to a landlord’s loss as referenced by the diminution in value. There are two parts to section18 (1): The first limits the claim to the amount that the value of the landlord’s reversion is diminished by breaches of the covenant to repair. The landlord cannot recover more than it has cost, in terms of the loss caused to the value of the property. This is the diminution in the property’s reversionary value, caused by the disrepair. The second part states that no damages are recoverable, if it can be shown that on the expiration of the lease the premises would be demolished or altered to the extent that would render valueless the repairs in question. In order to calculate the diminution, two valuations are required: firstly, to compare the property’s value in poor repair; and secondly to look at the value the property would have achieved in the open market if it had been maintained by the tenant. The second valuation is a hypothetical assessment, as the premises would not currently be in repair. It must consider all potential uses for the premises, as it may be more valuable as a redevelopment site or for an alternative purpose. It must also consider the extent that an alternative or change of use would affect individual elements of the schedule. For instance, repairs to the external areas may still need to be carried out. The Protocol states that the landlord’s claim must include a summary of the landlord’s intentions. Post-termination events are admissible as a means of assessing the diminution in value of the reversion at the end of the term. If the courts are unable to act on the facts presented, then the requirements of a hypothetical purchaser and transaction will be assessed.

This book is a leading authority in its field, providing comprehensive coverage of the legal principles relating to dilapidations, both residential and commercial, together with all the practical aspects pertaining to dilapidation claims. It offers a comprehensive, one-stop reference, assisting the reader with dilapidations issues and in determining the best course of action. It discusses the legal principles clearly and accompanies this with worked examples showing how they apply in practice. It also includes precedents, forms, statutes and extensive case referencing. The book is now largely recognised by the courts and the professions as the leading work on dilapidations, and it is referred to, and quoted from, in many cases.

The case is a useful reminder that landlords and tenants must consider liabilities for dilapidations at the end of the lease in a proportionate and realistic manner, and not stick steadfast to the principle that the cost of carrying out repairs will equate to the level of the claim. It reinforces the commitment of the Judiciary to focus heavily on both the cost of repairs and valuation issues when assessing such claims.