Author: Alison Mould
The pre-action protocol for terminal schedules of dilapidation was formulated ten years ago by the Property Litigation Association. It sets out a procedure for both landlords and tenants to deal with the issue of terminal dilapidations in an open manner, with the aim of facilitating a prompt settlement of claims and, where possible, to avoid litigation. Over the years it has had its critics and, whilst it was never properly adopted by the courts as a formal “pre-action protocol”, it has been utilised by most solicitors and surveyors. It shows what is “reasonable”, so that any deviation from it could be argued to be unreasonable.
After ten years of effort on the part of the Property Litigation Association, on 14 October 2011 it was formally adopted by the courts as a pre-action protocol.
The idea of pre-action protocols is to set out procedures which both parties must follow to ensure early disclosure of information, and that all avenues have been explored, in an attempt to settle matters before resorting to court involvement. There is a general pre-action protocol with which the parties must comply if a specific pre-action protocol does not exist. Terminal dilapidations now have their own pre-action protocol. Failure to comply can result in cost penalties including, in some cases, the loss of a costs order in its favour to a successful party.
The dilapidations protocol sets out a framework for the resolution of matters, and starts by suggesting that the landlord serves a schedule of dilapidations by no later than two months after the lease ends. The schedule should be served with as much information and documentation as is available to prove the landlords’ claim. For example, information should be provided as to whether the landlord intends to undertake the works, copies of any tenders and results of any tenders should be produced, the landlord should indicate whether it is VAT registered and, consequently, whether or not VAT forms part of its claim and, perhaps most importantly, in a number of situations the landlord should provide a valuation under section 18 of the Landlord and Tenant Act 1927. That Act limits the amount that a landlord can recover in connection with any terminal schedule of dilapidation to the actual diminution in value that the landlord has suffered to its reversion. If a landlord has undertaken the works at the time of the service of the schedule, then the protocol suggests that a section 18 valuation is not required in that situation, as there is a prima facie case that the works were required to re-let the premises.
The protocol goes on to suggest a time by which the tenant should respond and then sets out detailed procedures for without prejudice meetings between the parties.
The acceptance by the Civil Procedure Rule Committee and the adoption of the dilapidations protocol will mean that it is now tried and tested through the courts. Whilst many parties have been adhering to it and accepting its provisions as reasonable for some time, we may now find that we are given guidance on quite how reasonable landlords and tenants need to be.
Alison Mould, Partner, Fladgate LLP (firstname.lastname@example.org)