Dilapidations

TFT Edinburgh at 5: scaling the Cairngorms and court

TFT’s Edinburgh office is celebrating its fifth birthday with a difference. The office bash might have to wait for another year, but we’re looking back on some of our favourite projects to date, and the big things which lay ahead.

Jon Rowling, Technical Partner in our Edinburgh office, tells us about surveying in the Cairngorms and resolving legal disputes.

This was most definitely the highest I have been when carrying out inspections, which weren’t helped by the deep snow and sub-zero temperatures.  I nearly lost the tips of my fingers because, as an aspiring urbane surveyor, I slightly forgot that gloves would be important.  Certainly the best views though above the clouds, and feeling of being on top of the world.  As ever inspecting different types of buildings, one is always drawn also to understand what goes on there and how it all operates.  In this case there was a railway, a mountain rescue post, conservation, skiing, catering and retail all to be considered.  This is one inspection that I won’t forget.

Acting as a ‘court reporter’ for the Outer House, considering a dilapidations dispute in Glasgow:

A court reporter is appointed by the court to provide technical expertise when the case before the court is fundamentally a question of expert opinion.  As always with these disputes, significant time has passed since the evidence on site was available to review so it becomes a question of reviewing the (not insignificant) bundles of documents, and then expressing a reasoned opinion as to the various liabilities.  As often occurs though, much of the difference between the parties is a matter of legal interpretation and so the reporter is allowed to question to court on the correct legal approach.  In this case, the main issue was one of ‘supersession’.  I’m sure all dilapidations surveyors would like clarity from a court as to the correct way to deal with supersession.  Fingers crossed we find out.

I’ve also acted as arbitrator in dilapidations disputes.  The arbitrator receives evidence from the parties, considers it and publishes a binding ‘Award’ that sets out the resolution of the dispute.  Arbitration of dilapidations disputes is a growing area in Scotland and is something TFT is proud to contribute to.  Indeed, we have published a set of Dilapidations Arbitration Rules for Scotland, which we hope will aid parties who are considering this form of ADR.

Find out more about Alternative Dispute Resolution and how our teams can help you use it to your advantage.

Dilapidations Q&A: Your questions, our advice.

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.

Read more

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 [2016] 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. 

Surveyors have been hoping for some new case law to help us guide our clients. Unfortunately, the recently reported case of Capitol Park Leeds plc v Global Radio Services Ltd [2020] EWHC 2750 (Ch) does not help!

Here’s why:

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:

  1. That ‘agreements’ with your opposite number should be recorded in writing, to avoid the uncertainty and expenses of an estoppel argument
  2. That some surveyor-to-surveyor correspondence, and surveyor-to-client correspondence can be seen by the court
  3. 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
  4. 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
  5. 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?

Contact Jon Rowling to discuss your case and the best way forwards.

Commercial property tenants remain uncertain about ‘vacant possession’ definitions after a recent case between Capitol Park Leeds plc v Global Radio Services Ltd

TFT chairs RICS Dilapidations Conferences in Scotland and England

TFT Technical Partner Jon Rowling recently chaired the RICS Dilapidations Conference, Scotland. Jon is jointly based in TFT’s Edinburgh and London offices and heads TFT’s Dilapidations, Service Charge and Dispute Resolution service lines nationally. 

The event covered pressing issues for our UK clients, including: comparisons between Scots law and England and Wales; a mock cross-examination which highlighted why one wouldn’t want to get as far as litigation; and accession of movable items and fixtures.

Of the nuanced and challenging issues facing tenants and landlords, of great importance for both sides will be to avoid litigation procedures, which can be done with the right approach to dispute resolution.

Jon authored the go-to text book on these matters: The TFT Purple Book, which offers guidance and reference to make the right decisions through the process. Jon has also authored the RICS Dilapidations Guidance Note and the Dilapidations Dispute Resolution Scheme. He also chaired the London edition of the RICS Dilapidations Conference from 2010 to 2014.  Since then the event has been chaired by TFT Partner Paul Spaven

With Jon Rowling as the service line lead, TFT leads the way in dilapidations across the UK, while in Scotland our Expert Determination and Dispute Resolution offerings are gaining notable traction.

Neil Wotherspoon, TFT Partner and head of the Edinburgh office

Please do get in touch with either Jon or Neil if you would like any assistance with a dilapidations issue.

Japanese knotweed: a new statutory concern for dilapidations

Japanese knotweed is a concern to our clients when dealing with dilapidations and investing in property: it’s important that its presence is identified due to the potential damage it can cause from rhizomes (roots) penetrating masonry, foundations and paving and the potentially high cost of remedial works.

On top of the well known financial imperative, there is a further legal aspect which has recently come to light.

Japanese Knotweed – By MdE (page at dewiki | page at commons) – own photo, CC BY-SA 3.0 de, https://commons.wikimedia.org/w/index.php?curid=3506559

The Wildlife and Countryside Act 1981 and the Environmental Protection Act 1990 remain the overarching legislation that control the growth and correct disposal of Japanese Knotweed in the UK; with the Wildlife and Natural Environment (Northern Ireland) Act 2011 and the Wildlife and Natural Environment (Scotland) Act 2012 applicable to the respective regions, alongside the relevant disposal regulations.

However, the Anti-Social Behaviour, Crime and Policing Act 2014 introduces a further facet to what can become a problematic issue. A recent prosecution case by Bristol County Council demonstrates that local authorities are using the legislation available to them, taking action against those who fail to control invasive plants on their land. Under the Act, local authorities can serve a Community Protection Notice (CPN) on individuals or bodies acting in a way that has a detrimental effect on quality of life of those in the local area. Bristol County Council subsequently fined MB Estates Ltd £18,000 for failing to control the weed’s growth.

So landlords, tenants and professional advisers beware. It is important for property professionals and clients to be aware of the risks associated with Japanese Knotweed and that lease obligations relating to its presence and recovery of costs are carefully considered. Leases tend not to cover invasive species very well and linking its presence, and an obligation to remove, to a breach of covenant can be difficult.

For further information and advice specific to your property, please get in touch with Jay Ridings, Associate at TFT.

The TFT Purple Book: A guide to Dilapidations in the UK

The TFT Purple Book: A Guide to Dilapidations in the UK is a comprehensive guide which identifies the legal context, best practice, background to how and why dilapidations is dealt with as it is, and addresses areas of legal uncertainty. It aims to serve as a single point of reference from which the reader can develop a solid foundation of knowledge. It even considers cattle, children and ‘chattels-vegetable’ – and not many text books can make that boast.

You can read more and order the book here.

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New CPD event added to calendar

TFT is running another CPD event in London on 6th December, focusing on building viability. Topics covered will include Rights of Light, Sustainability, Dilapidations and Fire Safety. Some of the issues being addressed will be:

  • The factors to consider for maintaining the long-term potential of the building
  • Why fixtures and chattels can cost or save you money when negotiating dilapidations
  • Why calculating operational energy demands at the design stage is key to identifying opportunities for minimising energy consumption and costs
  • What might the Government ban on combustible cladding materials mean for existing stock?

To book your place, click here. Please note that this is a strictly RSVP event and space is limited. Attendance will be confirmed following registration. There will be two sessions to choose from, morning and afternoon, to suit diaries. One starts at 8am and the other at 4pm. Please state which session you would prefer.

TFT Dilapidations Flowcharts – Scotland

The latest Dilapidations Flowcharts – Scotland are reproduced by TFT’s dilapidations specialists Jon Rowling and Neil Wotherspoon and attempt to identify the manner in which the law, as understood, and dilapidations procedure, as understood, are generally amalgamated in practice. To view the full set of flowcharts, click the link below.

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Introducing The TFT Purple Book: A Guide to Dilapidations in the UK

The TFT Purple Book is an important guide that shines a light into dilapidations’ darker recesses, identifying the legal context, best practice, the background to how and why dilapidations is dealt with as it is, and addresses areas of legal uncertainty. It is written by a surveyor for surveyors and will also appeal to anyone else who needs to understand this often-complex subject (e.g. lawyers and academics). This comprehensive guide also highlights important topics which are often overlooked. It aims to serve as a single point of reference from which the reader can develop a solid foundation of knowledge. It even considers cattle, children and ‘chattels-vegetable’ – and not many text books can make that boast.

The TFT Purple Book is now available to pre-order on Amazon (available in-store on 18 October 2018) and was written by TFT Technical Partner Jon Rowling, a leading dilapidations specialist and independent expert, expert witness, mediator and arbitrator.

To contact or read more about Jon, click here 

This is the first edition of a book about dilapidations in the UK. You will know that there have been other books written about dilapidations, so why another one you might reasonably ask. It is a good question so I take the opportunity of these opening paragraphs to attempt to explain my impertinence.

My aim has been to provide a reference book that I would have found useful when starting out and practising in the field of dilapidations; a succinct but reasonably thorough romp through the various principles, procedures, reasons, uncertainties and dilapidations-related topics. This isn’t a legal text book; this isn’t a guidance note; this isn’t an attempt to state the law (albeit the law as understood at July 2018 is applied); I’m not a lawyer; I’m not a valuer and, whilst I am a building surveyor, I don’t attempt to tell the reader how to survey a building.

What this book does do is distil a good number of years of acknowledging that the subject is complex, of learning, reading, practising, getting things wrong, trying again, checking constantly, and attempting to get to a position where I understand the subject well enough to explain it to others.

If there is one thing you pick up over the years, it is a gnawing realisation that the more you get to know, the more you realise you don’t know; and that what you thought was certain, almost certainly isn’t certain after all…

Jon Rowling, Author

Reviews include:

This is an excellent guide to the law and practice relating to dilapidations in the UK and will be invaluable to the practitioner whether surveyor or solicitor. Of particular assistance is the helpful way the author approaches the thorny issues of how items should be classified (chattel or fixture?) and supersession. This ‘go to’ guide should save clients both time and money.

John de Waal QC – Barrister and Mediator, Hardwicke

As a book which is intended to draw together the many and complex strands of dilapidations practice, The TFT Purple Book is an accomplished piece of work. I’m recommending it as vital reading to junior members of our team, but it’s also illuminating for those of us with several years’ experience on the legal side who still have more to learn about building surveying and valuation practice within this field.

Tim Reid – Senior Associate, Hogan Lovells International LLP

The book offers a comprehensive and one-stop reference in respect of all things dilapidations. As well as being to the point and easy to understand, it also deals with the different approach adopted in Scotland given the absence of the Landlord and Tenant Acts. This textbook will certainly have a place in our office.

Philip Knight – Managing Associate, Womble Bond Dickinson (UK) LLP

All too often in practice it is relatively straightforward to establish the answer to any particular problem or to express an opinion.  What can be far more difficult is to be sure of how to achieve that outcome.

TFT’s excellent Purple Book seeks to provide the sort of practical contribution and easy understanding that is usually only gained by years of experience.  This new book offers an intensely pragmatic and easily readable text about dilapidations in the UK, which will be a valuable guide of immense assistance to surveyors and other practitioners in this field.  Jon Rowling and his team at TFT should be applauded for their efforts, particularly their ability to identify and to answer so many questions that are often asked, but rarely answered.

David Nicholls – Barrister, Landmark Chambers