Neil Gilbert

Questioning assumptions of value and supersession amid market disruption

In the latest of our articles tackling pressing commercial property issues amid COVID-19 disruption, we suggest that now is a good time to re-assess your property valuation assumptions.

What will the commercial property market look like in a few weeks’ or months’ time? We don’t know for sure but we can refer back to 2008 for similar shock when the financial crash hit. At that time, tenants whose leases were coming to an end were mostly comfortable in the knowledge that their landlords were due to redevelop or refurbish the premises. This would largely eliminate their dilapidations liability. When the crash happened, those sensible assumptions became wrong assumptions.

We might well be in a similar situation now. We don’t want to paint a negative picture of the immediate future, and we hope that commercial property remains a strong investment. But, plan for the worst and hope for the best. Planning for the worst might well mean that tenants should now be reconsidering those assumptions about their landlords’ redevelopment plans and perhaps should be updating their strategy.

Perhaps tenants should budget for a greater liability, now assuming that their landlord might well want the premises returned reinstated, repaired and decorated, so that the property is available immediately for new tenants to occupy. 

If tenants’ premises are vacant due to home working, or if home working policies now mean that premises can be made available for contractors to complete dilapidations works then perhaps that should be considered again by tenants nearing the end of their tenancies (if construction work is permissible during COVID-19 restrictions of course).

We aren’t valuers but we wonder whether future valuations back-dated to a period shortly before COVID-19 restrictions were in place would take account of the then-future restrictions. From what we know of valuation assumptions, we doubt that COVID-19 would be taken into account, which might well be a blessing for tenants who are wanting to demonstrate that, on the valuation date (the lease end date) the landlord or the market would or should have intended to refurbish or redevelop.

Current circumstances may, unfortunately, lead to disputes about these sorts of issues. Supersession and valuation matters are complicated and expensive to argue at the best of times, so we hope all parties in this situation are able to come to an amicable solution.

For those who need guidance and support in working through these matters, please contact either Jon Rowling or Neil Gilbert to discuss how we can help.

Alternative arrangements for conditional break options

COVID-19 has implications for a few areas of the landlord-tenant relationship, which we’ll explore over the next articles. For the first, we ask: where do site closures leave tenants who have to carry out construction works in order to satisfy a conditional break option?

It is not uncommon for tenants to have to provide ‘vacant possession’, to comply materially with all obligations or to complete other specified works; either by the purported break date or (sometimes) when the break notice is served on the landlord.

In circumstances where construction activities are restricted by covid-19, where does this leave a tenant who is now unable to carry out that construction work?

It is worth checking whether the construction activity really is restricted. For example, the tenant might be an NHS entity and complying with the break might save the NHS significant funds; does that make it ‘essential’ work? At the time of writing, UK government guidance appears to be that construction activities can continue so long as social distancing is maintained, whereas the Scottish government has indicated that all construction activities should cease. Some contractors have unilaterally taken the decision to pause work (the contractual implications of which is another matter).

Uncertainty abounds.

Where these break option cases have made it as far as court, judges have been very rigid in their requirement that a tenant has to comply with its obligations precisely. That doesn’t bode well for tenants who find they are unable to comply with their obligations.

The usual approach for tenants has been, prior to starting their construction works, to engage with their landlords to try to negotiate an exit from the premises without having to comply with the break option conditions. It is generally accepted that the landlord has the upper hand in these negotiations; presumably if a landlord knows that a tenant has no opportunity now to comply with its break option conditions, the landlord’s negotiating position improves substantially.

All things being equal one has to expect that landlords will not be keen on their tenants moving out just when rents are not being paid, when the future market might be weaker and when tenants are perhaps less likely to want to renew. 

Maybe there is an opportunity for landlord and tenants to be collaborative; if complying with the break option conditions isn’t possible it might be possible to agree a different way round things – maybe joint marketing of the space until such time as a suitable new tenant appears, at which point the departing tenant is allowed to surrender the lease.

Whatever happens, the implications of COVID-19 will have changed the landscape for many considering exercising break options.

We offer advice to help parties involved in this or similar situations come to an amicable solution, even in the midst of disruption.

Contact either Jon Rowling or Neil Gilbert to discuss how we can advise you.

TFT Dilapidations Flow Charts

The TFT Dilapidations Flowcharts are an industry first. They explain and demystify the various steps involved in a typical end-of-lease dilapidations dispute, identifying how a dilapidations liability is calculated. For the first time, complex issues such as the classification of fixtures and chattels, the reinstatement of alterations and disrepair are explained visually. The dilapidations dispute resolution process and options are also identified.

We hope the TFT Dilapidations Flowcharts will become a useful industry-standard resource for both clients and other surveyors to help improve the dilapidations process. At present, partly because dilapidations disputes can be highly complicated but partly also because many who dabble in dilapidations do not know the background to the issues, dilapidations disputes can become contentious, costly and time consuming. The TFT Dilapidations Flowcharts are part of our effort to improve this area of practice.

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Time for giving

TFT Bristol’s client, Tesco, support a charity called Fareshare who work with the food industry to minimise fit-for-purpose food going to waste by sending it to organisations working with the most vulnerable people in the community.

Neil Gilbert, Bristol-based partner, supported FareShare in his year as founder president of a local Bristol Rotary club and thus has a close relationship with them as well as supporting their community projects. Recently, they planned to take a lease of a warehouse unit in Totton, Southampton, as a regional base. Tesco generously provided the agency support and their lawyers, BLP provided the lease/legal advisory services. Neil undertook the TDD survey and produced the report last month as we [TFT] agreed provided the TDD and all FoC.

TFT speaking at RICS Dilapidations Forum Conference 2017

TFT Partner Neil Gilbert will be speaking at this year’s RICS Dilapidations Forum Conference in September. Neil will review the RICS dilapidations guidance note, now in its second year, and debate whether the dilapidations process has improved and whether settlements have been achieved any quicker.

Jon Rowling, TFT’s Head of Dilapidations will also be speaking as a panel member about supersession.

The Conference itself will be chaired by TFT Partner Paul Spaven. More details can be found here.

TFT welcomes new 7th edition of the RICS Dilapidations Guidance Note

Effective from the 1st December 2016, the new 7th Edition of the RICS Dilapidations Note provides greater clarity on a number of relevant matters, many of which are already changing the dilapidations playing field. These matters include the following:

  • The roles of the surveyor: Adviser, Expert Witness and Independent Dispute Resolver.
  • What constitutes supersession and guidance on where supersession can be accepted or not. This also includes reference to another ‘hot topic’: MEES (Minimum energy efficient standards) and how these standards may affect a claim.
  • The RICS Dilapidations Dispute Resolution Scheme and how this new form of ADR can assist in resolving dilapidations disputes.
  • More guidance on diminution valuations
  • Handling of break clause situations
  • Form and content of the Quantified Demand

Please contact Neil Gilbert, Partner and Head of the TFT Dilapidations Working Group for further information about how these changes may affect your dilapidations position now and in the future at ngilbert@tftconsultants.com.

Riverside Park Limited v NHS Property Services Limited

New guidance on whether internal partitions and other tenant works are chattels or fixtures; a cautionary tale for tenant lease breaks.

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Repair covenants – often a brief but critical piece of wording

In his article first published by RICS in the December 13/January 14 issue of Building Surveying Journal, Neil Gilbert, Partner and Head of Dilapidations at Tuffin Ferraby Taylor explains the definitions behind lease repair covenants and the need for brief but accurately written repair covenants. Surveyors need to understand the implications and underlying meanings behind the wording as the detail and theme of the covenant can be easily missed.

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How Dilapidations differ across the UK

UK Dilapidations claims outside of England and Wales can be a minefield for the unwary. Dealing with dilapidations claims on a nationwide basis calls for a much broader understanding.

TFT’s new white paper: ‘How Dilapidations differ across the UK – an outline of the regional variations’ addresses the differing obligations and terminology applicable in Scotland, Northern Ireland and the Channel Isles.

A good example is the very recent Jersey Sports Stadium v Barclay Private Clients (2013) case passed in the Jersey Royal Court which saw the court considering the cost of works and the diminution in value and preferring the guidance given in Ruxley v Forsyth (1996) over that in Joyner v Weeks. This is an essential piece for anyone involved with commercial leases outside England or Wales.

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Hammersmatch Properties v St Gobain

The PLA Dilapidations Protocol sets out to avoid litigation and yet three cases have recently come to court. They all test established dilapidations principles and their outcome will interest anyone involved in this area.

We have produced a new TFT White Paper on the first of these, the Hammersmatch Properties v St Gobain case, which is highly interesting as it reiterates the appropriate measures and remedies for disrepair whilst focusing on the need for robust valuation advice.

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