Retail property trends are a hot topic, as the sector continues to be dynamic in responding to new customer needs, and new players shake up the market. TFT is here to support our retail occupier, building owner and investor clients when their spaces need to change, or to ensure that new developments are set up for the future. Recently we’ve been involved with retail property instructions ranging from refurbishments and reconfigurations of shopping centres, retail parks and high street locations, as well as major new developments.
In summer 2021, we celebrated the opening ofEdinburgh’s St James Quarter to the public. The project, which is Scotland’s largest and most significant mixed-use development project in a generation, is a landmark among the city’s retail and leisure offering which TFT monitored on behalf of the joint venture investors: Nuveen Real Estate and APG Asset Management.
After a mixed year for the sector, Retail Destination magazine spoke to Neil Wotherspoon, TFT Partner and head of our Edinburgh office, about the key retail property trends he’s watching in the months ahead. Here are some of his insights:
Supply chain disruption and changing expectations
The global supply chain has been heavily impacted by Covid, so delays and uncertainty around construction programmes remained even once sites were fully operational. one approach to mitigate that risk is by contractors buying materials in bulk to insulate from inflation further down the line.
As well as increasing material and labour costs, owners of retail property must consider the expectations and attitudes of their occupiers, which track customers’ changing priorities. As the shape of retail continues to shift, managing a portfolio requires some vision and investment, particularly for older centres which can be rejuvenated for a more modern clientele. Where those solutions can be found, they represent a more sustainable solution than demolition and development from scratch in many cases.
With no new retail developments coming through the pipeline, the focus will be on enhancing existing retail, particularly retail parks, to make it more experience-led and better adapted to a full day-out experience, coupled with convenience features.
I believe there is still cause for optimism although the reality is that landlords and developers will have to work harder than before. By creating mixed-use destinations including retail and leisure, operators and landlords can continue to perform well.
Neil Wotherspoon, Partner and head of TFT’s Edinburgh office
Check out Retail Destination’s article looking ahead to 2022, here.
Daylight and sunlight: new guidance, new questions
Many professionals and lay people (who aren’t daylight and sunlight surveyors) may assume that if a room has windows, it will be sufficiently lit by daylight. But our industry’s daylight and sunlight guidance and regulations contain much more nuance when it comes to determining good daylight provision, and there is plenty of debate behind the scenes.
Now, an incoming third edition of the Building Research Establishment (BRE) Guidelines ‘Site Planning for Daylight and Sunlight’, is set to adopt new methods of daylight measurement. These will be taken from the British annex of the recently revised and updated European Standard ‘Daylight for Building’ BS EN 17037:2018 (BS 2018).
Our standards for determining good natural light levels are set to change yet again.
What do new daylight and sunlight changes mean for developers, occupiers, and surveyors?
In advance of the BRE 2011 guidelines changing, we have already begun undertaking the new assessments for our clients and local authorities. BS 2018 provides updated assessment methods for quantifying the provision of daylight and sunlight to new rooms, and already supersedes the older ‘Lighting for Buildings – Code of Practice’ BS 8206:2:2008 (BS 2008). However, until formally adopted in the new BRE document, the older assessment methods in BS 2008 have not yet been fully phased out, so still inform the assessment methods used in current daylight assessments.
We put all the daylight standards to the test to see how they stack up. A recent daylight and sunlight assessment project provided the opportunity to explore the new tests required by the BS 2018, and to compare them with the current BRE requirements for daylighting provision to new rooms, which are aligned to the older BS 2008.
Our project brief was to analyse and quantify the potential daylight levels to rooms serving new residential apartments, in an existing building which was being reconfigured. We undertook daylight assessments firstly using the current standard ‘No Skyline’ (NSL) and ‘Average Daylight Factor’ (ADF) tests, which are based on the BRE 2011, and BS 2008. We then repeated the assessment with the newer tests specified in the BS 2018; the ‘Daylight Factor’ (DF) and ‘Illumination Level’ (LUX) methods. We then compared the different results for one example room in the existing building.
What is different about the new daylight and sunlight assessments?
The updated BS 2018 (and the UK National Annex within it), seek to improve upon previous assessment methods by allowing for more flexibility in acknowledging the difficulties designers face in designing for natural light in constrained urban sites, “… the recommendations for daylight provision in a space … may not be achievable for some buildings, particularly dwellings. The UK committee believes this could be the case for dwellings with basement rooms or those with significant external obstructions (for example, dwellings situated in a dense urban area or with tall trees outside), or for existing buildings being refurbished or converted into dwellings …” The BS 2018 assessment methods seek to make tests, and the data which informs them, more robust and climate / site specific. The original ADF and NSL tests are relatively basic geometric tests, and do not consider the latitude or orientation of the site, only the nearest external obstructions to the windows, and relatively little in terms of internal reflectance values or finishes.
Another important difference between the BS 2008 tests, and those of the BS 2018, is the treatment of the working plane or ‘reference’ plane. In the older tests the entirety of the room area if projected 0.85m up off the floor could be considered the working plane and assessed. The BS 2018 now requires that a 0.5m band around the perimeter of the room be excluded from the working plane and omitted from the tests. The remaining reference plane which is tested should result in less extreme individual highs and lows in daylight factors or lux levels across the room, which previously affected ADF results, especially for L-shaped rooms. However, whilst 0.5m exclusion band is recommended by the BS 2018, it remains to be seen if the updated BRE document will introduce more flexibility for this.
When assessing new rooms to reconfigured existing buildings, L-shaped or narrow rooms are often inevitable and cannot always be completely designed out. Although the perimeter exclusion band to the rooms is intended to even out extreme contrasts in individual daylight results across the room and to the edges of the working plane, it is ironic that the “working plane” for most room occupants is where they put their furniture, which is often against the walls of the rooms, especially in narrow and small rooms. The perimeter exclusion band might result in excluding those parts of a room from assessment, which are most in use by the room occupants due to where they place their desks. The central areas of such rooms, often being used as circulation, would be the main reference plane tested. This means an exclusion band of 0.5m would seem unrealistic for long and narrow rooms, and not commensurate with how such rooms are often used. Consequently, in our study, we chose 0.3m as a more appropriate perimeter exclusion band.
What did we find out?
In a nutshell: the new BS 2018 methods benefit greatly by taking site specifics into account, allowing for a more detailed measure of a room’s daylight potential. However, even between the two new methods (DF and Lux) different outcomes occur which will raise more questions in future about how either assessment should be deployed. The test results have been summarised in Table 1 below.
Table 1, illustrates the visual similarities between the tests, based on where the light is shown to pool into the rooms on the working plane. However, there are notable differences between the testing criteria in each test type, so important variations in the results are also observed.
Under the BS 2008 and BRE 2011 requirements, the LKD would not meet the ADF target value of 2% and would still fall short of an alternative target of 1.5%. It would conversely exceed the NSL target with 95% of the working plane achieving an unobstructed sky view. This is because these tests and their results only consider the most basic geometric obstructions outside the windows, and for the ADF, some generic reflectance assumptions for the room interior. No climate or geolocation specific data informs the tests or results.
For both the DF and Lux tests required by the new BS 2018, the results are informed by location specific climate data, although more so for the Lux test which also considers orientation. In this case the DF results for the room fall slightly short of the recommended target values, whereas for the Lux test the results achieved meet the BS 2018 recommended targets. This shows the BS 2018 testing methods are more site specific and technically robust, but still produce differences between them, in how or if they meet the BS 2018 target criteria to achieve good daylight.
The results of the comparative tests show that the two new tests from the BS 2018 are more comprehensive, and are more informative, when compared to the older BS 2008 tests. This could provide better outcomes for daylight consultants and clients as a result. Both new tests apply different parameters, so the choice of tests will allow for greater flexibility, so the daylight consultant can determine the most appropriate method to assess the space in question. In due course the new BRE Guidelines may provide additional guidance on which test is required (or if both are required), and this detail may be included in updated planning policy. The new BS 2018 also features updates to the calculations for Sunlight, Glare, and requirements for assessing Views, so it will be interesting to see how those are also incorporated into the new BRE Guidelines in the months ahead. The sunlight assessment will replace the APSH test for assessments of potential sunlight provision. However, this article has specifically focused on daylight.
We hope this has provided some clarity and insight to an important change for daylight and sunlight standards. There remain more nuances and discussions to be had on the standards, so please do get in touch in advance of the release of the new BRE guidelines, to help you prepare for these changes.
With COP26 underway in Glasgow, Estates Gazette spoke with TFT Technical Partner Jon Rowling about our Green Dilapidations process, explaining how a new approach can create a more sustainable commercial leasing cycle.
Joining us on the EG Property Podcast are Siobhan Cross, real estate dispute resolution partner at Pinsent Masons,and Allan Clark, head of sustainability and facilities compliance at Pinsent Masons.
Together, the panel explains why Green Dilapidations is receiving more interest from occupiers, agents and lawyers. The discussion also highlights next steps to introduce measures for a less wasteful leasing process, and how those tactics work from a legal perspective, an occupier perspective and balance sustainable actions while also navigating commercial business issues.
Green Dilapidations: more sustainable commercial property leases
Commercial building owners and occupiers are increasingly looking to fulfil their net zero carbon ambitions with measures beyond more sustainable development and energy performance practices. In particular, the current property leasing cycle and non-sustainable dilapidations processes are generating quantities of waste and carbon, which can be mitigated with a more sustainable approach: Green Dilapidations.
TFT’sGreen Dilapidations services are designed to help clients reduce the additional material, resources and cost associated with repeatedly fitting out and stripping out commercial property spaces over their lifetime. Taking a long-term view of tenancy, occupier and market requirements, we help our clients benefit from a more efficient, sustainable dilapidations process for both landlord and tenant.
Our support is rooted in facilitating better collaboration between stakeholders. That means the landlord and tenant of course, but also agents and the wider supply chain. Our sustainable building knowledge, commercial understanding and dilapidations expertise helps to formalise a better system as a whole.
We see a greater appetite from our landlord and tenant clients to adopt Green Dilapidations services. A notable occupier client is one of the leading property litigation practices, who we are helping to exit their existing offices in this way. Our recent seminar on green dilapidations in June was well attended by a cross-section of the industry, showing the breadth of interest for specialist advice on the subject.
It’s not just for offices either, and can be used for retail, industrial and other commercial property sectors.
Vacant possession: a new definition and advice for tenants
There has been a new Court of Appeal decision about vacant possession (“VP”) which changes what dilapidations professionals thought that VP meant after an earlier decision last year. That decision might have refined what we thought it might have meant since 2016, which probably changed what we had thought it meant prior to that.
What’s changed, and what should you do about it?
Summarising the new decision on vacant possession:
The Court of Appeal (applying the facts of the case in front of it) has this week said that VP relates to the lack of the “trilogy of people, chattels, and interests”.
That wipes out what we thought VP meant after the case that was appealed was handed down last year. That case had led us to believe that VP could fail to be achieved if too many of the landlord’s fixtures had been removed. Now, it seems, a tenant can remove as many bits of the premises as it likes, VP can still be achieved, and the landlord’s remedy is in damages (only).
In 2016, obiter comments in a high court judgement (which mean those words in the judgement do not form part of a precedent) suggested that, if a tenant had left too many tenant’s fixtures in place (in circumstances where tenant’s fixtures did not form part of the premises – as defined) then VP would not have been achieved in that case.
What should a tenant do to achieve vacant possession?
When exercising a VP conditional break, be cautious. Get legal and surveying advice.
Prepare early. Remove all people, chattels and interests and think about also removing your tenant’s fixtures if they do not form part of the demised premises. If you are not sure if an item is a chattel or a tenant’s fixture; remove it. It you are not sure if an item is a tenant’s fixture or a landlord’s fixture; remove it.
Make it clear to your landlord that you are leaving, hand over keys, alarm codes etc.
Don’t venture back into the premises after the break date.
Make sure you also have complied with all other break conditions (such as getting notices right, making sure all payments have been made – even if not demanded by the landlord).
If there is no VP condition, but there is different wording, then you might be required to do other things. If you are required ‘not to be in occupation’ then the process is less clear. It is probably less onerous than VP but nobody has been to court yet to find out. Don’t be the one to go to court to find out! To be cautious, assume it means VP.
If the condition is to comply materially then that is very very difficult to do. Assume you have to do everything perfectly and you have a chance. But beware late reinstatement notices from your landlord changing the goal posts after a date when you can’t do anything about it.
If the condition is to comply absolutely then you probably have no chance, but if it is worth trying then try.
Balance of power
The Court of Appeal decision has changed the balance of power more towards tenants if there is a VP condition to comply with. But, the power still really lies with the landlords because courts have been very strict in making sure tenants comply with their obligations correctly.
As this week’s judgement points out, that does not mean to say that the break clause should be interpreted unfairly in favour of landlords; rather, once the clause has been interpreted judges will expect strict compliance by tenants.
The cases referred to:
Capitol Park Leeds plc (1), Capitol Park Barnsley Limited (2) v Global Radio Services Limited  EWCA Civ 995
Capitol Park Leeds plc (1) v Global Radio Services Limited  EWHC 2750 (Ch)
Riverside Park Limited v NHS Property Services Limited  EWHC 1313 (Ch)
Virtual building surveys: 6 things you need to know
High quality visualisations produced by virtual building surveys are a powerful tool for investors, occupiers and other project stakeholders. We use them to save time when reviewing multiple buildings’ worth of information, or to communicate complex issues to non-technical specialists.
Here, we highlight the potential and limitations of the technology.
Virtual building surveys can have many applications across a building portfolio and construction projects. For instance, Technical Due Diligence (TDD), Dilapidations, Neighbourly Matters, Rights of Light and Project Management can all be enhanced by virtual surveying capabilities.
For all its uses and increasing market familiarity with the technology, the simple facts can be unclear.
Who needs it? How does it work? And is the cost worth it?
As with all innovation, we want to help our clients understand where technology can be leveraged across the building lifecycle – and where its limits lie!
Here are six things you need to know about virtual surveying:
1. Virtual surveys can save time and money
The great advantage of virtual surveying is the speed of information sharing. When investors, lawyers, asset managers and other stakeholders are required to visit sites and inspect details in person, the time and financial costs can mount.
Our high-quality visualisations are delivered along with a surveyor’s report within days of an inspection, providing all the necessary information for decisions to be made more swiftly.
2. Virtual surveys are easy to access and navigate
The surveyor completes the imaging process as part of their complete physical survey. Then the client receives a link to access the visualisation within a matter of days. That can be opened on any device from anywhere with an internet connection, with relatively little data load as the visualisation is hosted remotely. The experience is just like Google Street View – simple, flexible and highly informative.
3. Production is cost-effective and scalable
Imaging costs are a fraction of your building surveying fees, and these scale based on time spent taking the images. These aren’t tied to cost per square foot, but factors such as quantity of buildings or large, complex sites will take more time to photograph.
These rates are easily offset by savings on the resource required for investor clients, asset managers, project teams or lawyers to travel to the site physically. The larger the set of stakeholders who will be involved in seeing the building or acting on some aspect of the investigation, the more effective that small investment will be.
4. Virtual surveys reduce the need for (and risks of) travel
We face a long period of uncertainty about international travel and even some domestic trips might be disrupted in the event of local lockdowns. Virtual surveys can help off-set the risks of travel disruption for building transactions or other time-sensitive projects by relaying information quickly and accurately.
5. They can contribute to a powerful building record
Recording the building layout, fit-out and condition accurately can enhance Schedules of Condition reports. With a detailed visualisation and the surveyors’ report, occupiers and landlords can be certain of the state of a property at lease start and have a clear comparison with its condition at lease end.
Comparing a more up to date inspection to these previously recorded visualisations could make the dilapidations process more clear-cut for all parties.
6. There is no replacement for a full physical survey
The biggest misconception of virtual surveying is that surveyors or clients can make decisions solely from the visualisations it produces. This is not the case because physical investigation is a major component of any thorough survey.
For instance, we may need to scrape off paint to understand the material beneath it, take core samples of cladding or open up plant machinery to see its condition. Technology is some way off delivering that level of insight, and historic visualisations can miss out on recent unauthorised works, material deterioration and other deviations in the building.
Get in touch
Would you like to discuss the possibilities for virtual surveying across your portfolio? We’re happy to share our experiences and insights with you to understand how the technology could help you.
Dilapidations and demised premises: Where’s the rest of it?
Ben Sercombe makes the case for all parties to better document the contents of Demised Premises in their leases, to help reduce the expense, time and frustration which can result from dilapidations negotiations.
The decision in the case of Capitol Park Leeds PLC v Global Radio Services has generated interest as one of few recent cases in the world of dilapidations.
For those who missed it, the decision involved a lease break and the usual understanding of Vacant Possession was somewhat side-stepped. The provision of Vacant Possession allows the landlord to use the building without being impeded by the previous tenant’s occupants, chattels (and possibly tenant’s fixtures). However, in this case the tenant stripped out too much, so the Demised Premises was not all physically returned to the landlord. Unfortunately for the tenant, their lease break was therefore found to be invalid.
This begs the question: why not routinely document the constituent parts of the demise at the outset of a lease?
This is a formality for Assured Shorthold Tenancies, and many of us recall from early renting days – often as students – the ominous checking of the inventory by the landlord and pursuit of our rental deposit. In commercial leases there is usually a property definition, prepared by the solicitors. However, this is often generic and refers to ‘land and buildings’ or, in the case of internal repairing leases, sufficient detail to define the internal extents of the demise. It will be full of legal phrases such as ‘walls severed medially’.
It is almost unheard of for a solicitor to inspect the property for this purpose, let alone to find a detailed description, inventory, or photos within a lease for the purpose of identifying the elements in a building. A photographic schedule of condition can pick up on this to a degree, but it is prepared specifically to limit repairing liability by recording condition.
The very nature of dilapidations is a negotiation, and landlords and tenants who have been through the dilapidations process will know that it can be expensive, time consuming, and frustrating. This is particularly true when parties cannot agree on the definition of the Demised Premises or when they demand evidence from lease commencement.
Let us take carpets as an example. Were they demised? Do they belong to landlord or tenant? Are they chattels or fixtures? Who installed them? Who paid for them?
Providing evidence to answer these questions is difficult, particularly at the end of a 10-year lease term. This will inevitably lead to dispute. The significant work carried out by the RICS on their Dilapidations Guidance Note, and the creation of the Dilapidations Pre-Action Protocol have made great progress to reduce expensive litigation and court cases, as shown by the scarcity of recent dilapidations case law.
It makes sense, in further pursuit of concord at lease end, to fully document at lease commencement the elements that comprise the Demised Premises.
How should you document the Demised Premises?
Call a Dilapidations surveyor! They have the perfect combination of technical building knowledge and an understanding of the subtleties of dilapidations.
When should you compile a Demised Premises document?
For a new build: A detailed description can be prepared by the landlord when construction is complete, ready to attach to a future lease.
For an occupied premises: Once the existing tenant vacates, and after any dilapidations works are carried out (by either party), but prior to the new tenant’s occupation/fit-out works. A quick turn-around on the document may be required, but inspection timing is most critical.
Clarify funding responsibilities
The other issue would be where the landlord is funding repairs or alterations that the tenant carries out. The tenant may well do these concurrently with their fit-out making the distinction between landlord and tenant works complex. In a usual lease these works would be separately documented, so as long as this was clear, the same ends are achieved. (i.e. The lease would have a document attached showing who did and paid for what works).
Are you a landlord or a tenant looking for dilapidations advice? Start here with our list of commonly asked questions. For more details and advice for specific cases, head over to TFT Dilapidations to get in touch with our expert team who’ll be happy to help!
What is dilapidations?
Dilapidations relates to disrepair and other breaches of non-financial lease covenants during or at the end of a commercial property lease.
What is the role of a dilapidations expert?
Dilapidations experts are specialist surveyors trained to understand buildings, to interpret leases and to understand the associated dilapidations law. They provide sensible advice to landlords or to tenants on the tenant’s breaches at lease end (if any). This informs negotiation of a beneficial settlement of the dilapidations dispute.
In addition to this, some surveyors are appointed as ‘expert witnesses’ or ‘single joint experts’ and specially-trained dilapidations specialists can also act as ‘independent experts’ to resolve dilapidations disputes.
At TFT, we have what we consider to be the most respected dilapidations experts who are available to take on any of these expert roles.
What is dilapidations law?
The law of dilapidations is complex and can be uncertain. There are different legal systems in England and Wales, in Scotland and in Northern Ireland and so dilapidations law and procedure varies throughout the UK. TFT has published an accessible and readable guide to dilapidations called ‘The TFT Purple Book: A Guide to Dilapidations in the UK’.
What is dilapidations supersession?
Supersession is an undefined legal concept which effectively means that a landlord should not claim for the remedy of a tenant’s breach, because the landlord is proposing to do something else to the building which would supersede the need for the tenant to remedy their breach. TFT has developed a two step approach to supersession based on considering (i) mitigation and then (ii) causation.
What is the law relating to dilapidations fixtures and fittings?
The law relating to fixtures and fittings (or chattels/moveable items) is complicated and uncertain. Certain common law rights and/or obligations flow from the classification, which can be varied by contract. Generally speaking, loose items are classified as chattels (or moveable items in Scotland) and fixed items are classified as fixtures, although these presumptions can be varied. Fixtures can then either be classified as ‘landlord’s fixtures’ (‘heritable fixtures’ in Scotland) or ‘tenant’s fixtures’ (‘trade fixtures’ in Scotland). It can be important to understand the classification of items, particularly when dealing with conditional break options.
When should tenants seek dilapidations advice?
Commercial property tenants should always take dilapidations advice before signing a lease. Specialist dilapidations surveyors can assist tenants prior to signing the lease, during the lease term and, most commonly, before and after the end of the lease term when a landlord makes a dilapidations claim against the tenant. It is usual for a dilapidations surveyor to be able to reduce the settlement figure against that originally claimed by the landlord, often substantially.
Do you want advice on a specific issue? Get in touch with TFT dilapidations and dispute resolution expert Jon Rowling.
In dilapidations, what is vacant possession?
There is an implied obligation that a tenant will leave at the end of their lease term, and provide ‘vacant possession’ for the landlord to enjoy. There can often also be a contractual obligation to achieve vacant possession if a tenant wants to break their lease term early. The definition of vacant possession is a legal question but there is an expectation that the tenant will achieve certain conditions, including having moved out and removed certain items from the premises. The law around understanding what has to be removed, what can stay and what should not be removed has become complex in recent years.
What is a dilapidations break clause?
A break clause gives the parties (usually the tenant) the option to end the lease term early. Often certain conditions, including some builders’ works are required to be completed by a tenant before the break date in order for the break option not to be invalid. Specialist dilapidations surveyors can assist tenants by advising what works need to be completed, or assist landlords by advising what the tenant has failed to do. This is a contentious and specialist area of advice.
Feeling a bit overwhelmed by dilapidations terminology? Never fear, we’ve created a dilapidations glossary to help with that. Find it here.
What is dilapidations expert determination and who does it?
This is a form of alternative dispute resolution which leads to a binding determination. It is not governed by statute (as arbitration is), rather by contract law; the two parties and the independent expert have a contract to facilitate the determination. The expert should use his or her own expertise (as well as any information provided by the parties) to come to a binding determination. There is very little scope for appeal. Generally, expert determination is considered to be best suited to specialist commercial disputes, such as dilapidations. At TFT, we can accept appointments to act as the independent expert, or to help parties who are engaged in the process.
What is the dilapidations dispute resolution scheme?
Published by RICS, the Scheme is designed specifically for end of lease commercial dilapidations disputes. The dispute is settled by an independent expert with both parties given the opportunity to provide submissions to the expert.
What is dilapidations reinstatement?
As part of a dilapidations claim, the landlord might require the tenant to reinstate alterations the tenant has made to the property, or to remove the tenant’s fixtures. Often, the landlord is required to serve a notice on the tenant in order to trigger the obligation. An obligation to reinstate can also be found within a licence to alter.
What is the dilapidations protocol?
The Dilapidations Protocol is a document published by the Ministry of Justice, relevant only in England and Wales. It tells the parties within a commercial property dilapidations dispute what the court expects them to have done before getting to court.
Are dilapidations provisions subject to VAT?
Commercial property dilapidations settlements in the UK are damages payments so are not subject to VAT. However, an allowance for VAT can be included within the settlement figure if the landlord will incur VAT and not be able to recover it from HMRC.
Dilapidations: Glossary of technical terms
Absolute compliance: A term used to describe a (rare) condition to a tenant’s break option. An absolute compliance obligation indicates that there can be no outstanding breaches of any obligations whatsoever.
Break option: An option agreed between the parties which allows the tenant (and/or the landlord) to end the lease term early. Conditions usually need to be complied with such as the serving of notices, payments of rent or other sums due, and those relating to the condition of the premises.
Chattel: A loose item (or perhaps an item which is fixed slightly and/or so it can be enjoyed for its intended purpose) which does not satisfy classification as a fixture.
Dilapidations Protocol: A document published by the Ministry of Justice which identifies what the courts of England and Wales expect the parties to have done before issuing legal proceedings in an end of lease dilapidations case relating to commercial property.
Diminution in value: This means a reduction in value. Usually, the context is that a claimant landlord is, in some circumstances, limited to claiming the diminution in value of the property caused by the tenant’s breaches rather than the cost of the works necessary to remedy those breaches.
Expert determination: A form of ADR which provides a binding conclusion to the dispute in the form of a Determination. The process is private (unlike litigation) and offers very limited opportunities to overturn the determination. The independent expert is not limited by evidence presented by the parties and can use their own expertise and evidence to inform their decision. There is no statutory framework.
Fair wear and tear: A term to define damage or deterioration which has occurred because of (i) natural weathering and/or (ii) the use of the premises in the manner in which the parties intended.
Fitting: A word usually associated with fixtures (i.e. fixtures and fittings) but which has no defined legal meaning in this context. Fitting might mean ‘chattel’, or ‘tenant’s fixture’, or something else, depending on the context.
Fixture: An item installed in the premises which does not satisfy classification as an integral item or chattel.
Interim schedule of dilapidations: A colloquial description of a schedule of dilapidations sent to the tenant during the lease term and not in anticipation of the end of the lease term.
Jervis v Harris clause: A lease clause which introduces a mechanism whereby the landlord can require the tenant to remedy breaches, and if the tenant fails to do so the landlord is granted a right to enter the premises to carry out the works and recover the cost of those works from the tenant as a debt, rather than as damages.
Landlord’s Fixture: An item fixed to the premises which the tenant does not have a common law right to remove and is either provided by the landlord or, if provided by the tenant, would lose its amenity on removal.
Landlord and Tenant Act 1927, s18(1): This section limits a landlord’s claim for damages from a tenant for breaches of the obligation to repair. It is generally accepted that s18(1) has two parts (‘limbs’); one relating to diminution in value and one relating to the consequences of the landlord’s intentions.
Law of Property Act 1925, s146: This section identifies the procedure for serving notice on a tenant during the term of a lease in order to make a claim for breach of contract.
Licence for alterations: A document which grants the tenant consent to undertake works which would otherwise be in breach of the terms of the lease. Licences for alterations usually contain a covenant requiring the tenant to remove the licensed works at the end of the lease term.
Payment clause: A clause in a lease which purports to allow the landlord, at lease end, to claim from the tenant the cost of the dilapidations works (plus potentially any other sums identified in the clause) as a debt rather than as damages. These clauses (where they refer to the cost of works rather than the value of the schedule of dilapidations) have been enforced in Scotland.
Quantified demand: A document prepared in compliance with the Dilapidations Protocol which identifies the claimant landlord’s likely loss as a consequence of the tenant’s breaches, together with basic details of the claim(s) being made. A schedule of dilapidations might typically be appended to the quantified demand. See also: Dilapidations Protocol.
Reinstatement / removal notice: A notice served by a landlord which triggers a tenant’s obligation to reinstate alterations or to remove additions or tenant’s fixtures. Failure to serve a reinstatement / removal notice when it is required to be served would mean the landlord’s right of action for reinstatement / removal falls away. The timing of the service of removal / reinstatement notices is important.
Repairs notice: A notice served by a landlord to support the Jervis v Harris process. The Notice will usually include a schedule of breaches (or a variant thereof). See also: Jervis v Harris clause.
RICS Dilapidations Dispute Resolution Scheme: A form of ADR designed specifically for end-of-lease dilapidations disputes. Ultimately, the dispute is concluded by the publication of a binding determination; an interim stage is offered in the form of a neutral evaluation, with opportunity for the parties to settle based on the content of the evaluation.
Schedule of condition: A record of the state of the premises at the start of the lease term, which is referred to in the repair clause (and potentially in other clauses) so as a limit on the tenant’s obligation to repair (and potentially on other obligations). See also: repair.
Schedule of dilapidations: A document which identifies breaches of the lease, appropriate remedial works and (usually) the cost of those remedial works. A schedule of dilapidations is usually prepared by a landlord and sent to a tenant (but in a service charge context a tenant can prepare a schedule of dilapidations to be sent to the landlord).
Scott schedule: A document used by the parties’ surveyors to respond to each other’s statements. The tenant’s surveyor usually responds to the landlord’s schedule of dilapidations in the form of a Scott schedule and returns the Scott schedule to the landlord’s surveyor for further ‘rounds’ of discussion.
Standard of repair: The bar below which the state of the property has to fall before there is a breach of the repair obligation. The standard is judged by reference to the age, character, location and general condition of the premises at the start of the lease term.
Supersession: A legally undefined term which describes a restriction on what a landlord can claim from their tenant, in circumstances where the landlord carries out works other than those which the tenant should have completed.
Tenant’s fixture: An item fixed to the premises by or on behalf of the tenant which the tenant has a common law right to remove. On removal, the item would retain its amenity.
Terminal schedule of dilapidations: A colloquial description of a schedule of dilapidations sent to the tenant near to the end of the lease term and/or in anticipation of the end of the lease term.
Vacant possession: A legal term used to describe an obligation on the part of a tenant to remove themselves and their items (plus any other encumbrances to the landlord’s occupation) from the premises at the end of the lease term. Vacant possession is a common condition to a tenant exercising a break option.
Click here to view the full TFT glossary of building, real estate and other industry-related terms.
Vacant Possession just got more complicated for tenants
TFT dilapidations specialist Jon Rowling explains a new concern for commercial property tenants trying to achieve ‘vacant possession’ for a lease break. They may have been careful not to leave too much behind, but now they also need to be careful not to take too much away.
Tenants wanting to exercise a lease break option always have to be cautious, because the conditions are interpreted strictly and precisely by the courts. With one false move, the lease term continues.
Having to provide vacant possession (VP) is still a common hurdle. Whilst there is case law supporting its definition, uncertainty remains as to what tenants need to do to achieve it.
Since Riverside Park Ltd v NHS Property Services Limited  EWHC 1313 (Ch), there has been some uncertainty as to whether tenants only need to remove chattels, or whether fixtures also need to be removed. An additional complication arises if the break clause condition calls for the tenant to be “not in occupation”, because it’s not always clear what that means.
In this case the tenant had to provide vacant possession of the “Premises” (as defined). The court held that the tenant failed to do so, and therefore the break failed. It failed because the tenant failed to yield up the Premises. In fact the question of VP doesn’t seem to have been necessary to consider because the decision seems to have made based on the definition of the Premises.
The tenant knew they needed to remove their own fit out and did so. However, they also removed (or had previously removed) significant elements of the landlord’s building including air conditioning, ceilings, fire barriers, radiators, lighting, floor boxes, small power etc.
The definition of the “Premises” included:
“… all fixtures and fittings at the Premises whenever fixed, except those which are generally regarded as tenant’s or trade fixtures and fittings…”
Essentially, because the tenant had removed landlord’s fixtures, it had not yielded-up the Premises. Too much of the Premises was missing.
Tenants who have to achieve VP have always been cautious about leaving too much behind, but now they also need to be cautious about taking too much away. Potentially, the fact that the items removed by the tenant in this case were so substantial might mean that other tenants who remove just a little bit too much could draw a distinction between their case and Capitol Park v Global Radio?
The case is also interesting, particularly for surveyors, because it raises further commonly encountered issues:
That ‘agreements’ with your opposite number should be recorded in writing, to avoid the uncertainty and expenses of an estoppel argument
That some surveyor-to-surveyor correspondence, and surveyor-to-client correspondence can be seen by the court
That tenants preparing for a conditional break, where building works are required to be completed, should press ahead with that work until such time as a financial agreement and surrender is agreed between the parties. Don’t stop work in anticipation of a settlement being reached
Riverside v NHS was mentioned in the judgement, but we still don’t know whether tenant’s fixtures also need to be removed to achieve VP
The case didn’t consider what the phrase “not in occupation” means.
Capitol Park Leeds plc v Global Radio Service Ltd considered whether the removal of landlord’s fixtures was enough to frustrate a VP condition to a break, or whether the removal of the landlord’s fixtures should be considered as part of a dilapidations claim, after the successful exercise of the break. The judge preferred the former option, but leave to appeal has been granted.
Are you a landlord or a tenant of commercial property with queries about a lease, dilapidations or dispute resolution?