Dispute Resolution

There are three things that you need to look out for at the moment when dealing with a schedule of condition in a terminal dilapidations claim.

The first is whether the SoC qualifies only one obligation or several obligations under the lease. Normally, if the SoC wording is found in only one clause, it will not qualify the other clauses. However, the wording can be wide enough to qualify all of the obligations eg “the tenant shall not be obliged under this clause or any other clause of the Lease to carry out any works necessary to repair any of the defects shown in the schedule of condition

The second is that the tenant may not be obliged to put the premises into a better condition than that shown in the SoC.  That can have a drastic effect on its liability.

Take a lightly marked wall at date of entry, for example. At lease expiry it may be in a terrible state of decoration. It will be virtually impossible to decorate that wall so that it is in the same lightly marked state shown in the SoC. The only viable repair for the wall is to completely redecorate it. By doing that, the tenant will argue that the landlord has put the wall into a better condition and so it is not liable for the cost of that repair.

That argument has merit.  It has not been tested yet, but a court might not let a tenant off that lightly. A judge may be prepared instead to take a more equitable approach and award the landlord a proportion of the costs of decorating the wall.

The third and last is that, as a result of the case of Dem-master Demolition Limited against Healthcare Environmental Services Limited https://www.scotcourts.gov.uk/search-judgments/judgment?id=8dc5f6a6-8980-69d2-b50, tenants are now arguing that SoCs are only one piece of the evidence jigsaw.

In this case, the court held that the words “as is evidenced on the said Photographic Schedule” meant that the tenant could point to other sources of evidence – statements from employees, other photographs etc – to supplement the SoC. This could mean, for example, that if the roof was not included in the SoC but the tenant’s director remembered that the roof was in a poor condition at the date of entry, the tenant, if that director was proved right, would not need to repair the roof. The director’s evidence would be as good as the SoC.

That makes very little sense to us. The purpose of a SoC is to give the parties as much certainty as possible. If the parties were able to have regard to lots of other evidence of the condition at date of entry, it almost defeats the purpose of a SoC. We therefore think that it is only in very rare circumstances, where the wording is just right, that this argument will be followed.

That said, it isn’t stopping tenants from making the argument, where they have a poor SoC, that they can rely on other evidence to limit their liability.

Matthew Farrell

Matthew Farrell

Partner at Brodies LLP
Matthew deals with complex and high value real estate disputes for a wide variety of clients, from property funds and corporate occupiers to developers and public bodies. He is especially well known for top end dilapidations disputes.
Matthew Farrell