5 Talking Points: RICS Dilapidations Conference

1) Dilapidations by any other name

Many practitioners wrongly assume that other jurisdictions have substantially the same regime for dilapidations as we have in England and Wales, but nothing could be further from the truth. Indeed, the term “dilapidations” is rarely understood beyond our shores, although in most jurisdictions there will be at least some expectation on the tenant to hand back a property which has been kept in some state of orderly repair. Some states (such as France) have moved to a system of mandatory schedules of condition, whereas others (such as the Netherlands) oblige the landlord to carry out repairs, albeit at the request of the tenant. There is a growing trend for repair-inclusive rents, which are widespread in the USA and are expected to become more popular in Europe over the coming years. Importantly, diminution in value is not always a recognised concept, even in Europe.

2) Valuation is very, very difficult

The limitations on loss afforded by section 18 of the Landlord and Tenant Act 1927 are well-known, and often quoted, by most Property Litigation solicitors. However, the nuances of a section 18 valuation itself are certainly best left to expert surveyors, as neatly demonstrated by a number of problem scenarios worked through by the very entertaining RICS panel of Simon Crust (ProMission), Tony Guthrie (Gerald Eve) and Nicholas Dowding QC (Hollis). Many principles seem self-evident and uncontroversial, such as the fact that the reversion being valued should reflect the actual legal interests to which it is subject – i.e. planning consents, sub-leases, etc. The exercise becomes far more complex when one considers, for example, the tenant of a 20-year lease who failed to maintain its air conditioning units throughout the term, leaving the landlord having to undertake a wholesale replacement. Should the valuer in that scenario assume that (i) the tenant had replaced the units with brand new ones when yielding up the premises, or that (ii) the tenant had maintained the units during the term, with the landlord taking back a dated, but functioning system? Answers to questions such as this won’t be found in section 18 itself, so it is critical to involve a specialist, expert surveyor as early as possible in the dilapidations process.

3) A MAD, BAD experience

A fascinating session on conflict resolution had delegates contemplating whether they were ever guilty of being MAD (with a “Mistaken Assessment of Danger”) or, worse, BAD (displaying “Behaviour that is Aggressively Defensive”). Whilst we solicitors have a natural tendency to focus on hard negotiation and, at times, intellectual one-upmanship, this insightful session by Gary Webber and Sara Benbow of The Property Mediators gave sage advice on how to deal with difficult, conflict-minded opponents (and how to identify if you are, in fact, that person). The benefits of engaging a professional, experienced mediator were plain for all to see; they can create some much-needed distance between clashing personalities, and help each party to feel that they are being heard in a far more genuine and meaningful way than might otherwise be the case.

4) Why litigate, when you can arbitrate?

Perhaps because of the excellent work of both RICS and the Property Litigation Association in developing the CPR Dilapidations Protocol (to give it its unofficial title), many parties overlook the possibility of adopting means other than court litigation to resolve their dilapidations disputes. In the spotlight during this session (from Janet Bignall QC of Falcon Chambers and Julian Greenhill QC of Wilberforce Chambers) was arbitration, which is certainly employed far less than both formal litigation and mediation in dilapidations matters. However, its relative rarity is perhaps surprising given some of the benefits it offers over court intervention. It is a consensual process – meaning that parties can feel more engaged and willing from the outset – and can mitigate both the costs and risks involved in seeing a claim through to a contested trial. In particular, parties are free to select an arbitrator who is an expert in the field of building surveying; contrast this with a claim in the County Court, where the District Judge hearing technical surveying submissions might be a practitioner in family law (or, in the recent landmark Ground (f) claim of S Franses Ltd v The Cavendish Hotel (London) Ltd, travel and tourism law).

5) Be more flexible

“Flexible working” has become something of a buzz-phrase over the last couple of years but, as explained by Tom Sleigh of Colliers International, the flexible workspace market is a far more sophisticated one than many in the Real Estate industry might realise. Considered by some to be the reserve of the hipster start-up, there is in fact a growing trend amongst substantial, established businesses to recognise the benefits of more agile office arrangements. Many offer a capped, all-inclusive rent and service liability, without any building and facility management headaches. They can mitigate the exposure of an unforeseen dilapidations claim and, in the present climate, can offer a way of dealing with sudden (and often dramatic) changes in the size of a business’s workforce.

(Image Source: RICS)