On the evening of the first major tournament fixture between Scotland and England since Euro 96 we ask the question: which jurisdiction has the preferable approach to dilapidations claims?
Ok, now that the (extremely) tenuous link is out of the way, you might wonder why this question is important - or why it even matters. The answer is that there are considerable differences in the approach taken north and south of the border, which can have a significant (and often surprising) impact – especially for those used to operating in the other jurisdiction.
There are procedural differences, of course. Entirely different court systems for starters. There is no Pre-Action Dilapidations Protocol to follow in Scotland and different (although similar) procedural guidance for surveyors issued by the RICS.
There are differences in the substantive law. For example, Scots law has the concept of "extraordinary repairs" - which operates to limit the extent of a tenant's liability unless specific wording is used in the lease to extend the tenant's obligation to works that go beyond repair (and involve replacement, reinstatement or rebuilding) and works that are necessary for any reason (including those caused by latent defects). The same concept does not exist in England, although a tenant can seek to defend a claim on the basis that works go "beyond repair".
Under Scottish common law, the default is that a landlord is liable for keeping premises wind and watertight during the currency of a lease. This obligation is usually reversed and put on the tenant by particular words used in the lease but, if the correct form of words is not used, a landlord can find itself in a difficult position. No such default rule exists in England.
There are also differences in the remedies available to landlords. In England, it is almost unthinkable for a landlord to seek to enforce an interim schedule of dilapidations by means of seeking an order from the court for specific performance, compelling a tenant to carry out repair works. In Scotland, however, this is a perfectly feasible (if rare) step for a landlord to take.
The most important difference between the jurisdictions, however, concerns the approach taken to quantifying a landlord's claim for damages when a tenant is in breach of its repairing obligations / covenants. In England, there is a statutory cap on the damages that a landlord can recover (under s18(1) of the Landlord and Tenant Act 1927). In effect, this cap means that a landlord recovers the lesser of (i) the cost of the necessary works and (ii) the diminution in value of the reversion; and if the premises are shortly to be pulled down or such structural alterations make any repair valueless, the landlord will have no claim. In Scotland, there is no such cap. The starting point for the assessment of a landlord's claim is usually the cost of the necessary works, subject to the possibility of the court finding that a landlord's 'true loss' is a lesser sum, calculated on another basis.
Expert reports from surveyors specialising in diminution in value therefore have a place in Scotland. These are often instructed by tenants facing large claims from landlords in circumstances where there is a question mark over whether the works claimed for will ever be done. But such reports are not ubiquitous (as they are in England) and, so far as the authors are aware, there is no reported decision of the Scottish courts in which a claim for damages has been assessed by reference to diminution in value. In Scotland, the quest to establish a landlord's 'true loss' perhaps creates uncertainty, which is avoided by the codified approach taken in England.
In England, a well-informed party can be reasonably certain of the merits of its claim or defence with a section 18(1) valuation and make strategic decisions to protect itself on the costs risk of proceeding with litigation. Parties in Scotland are not afforded the same certainty.
A by-product of the absence of a statutory cap in Scotland is the Scottish courts' willingness to enforce so-called 'dilapidations payment clauses'. These are clauses which, at lease expiry, oblige a tenant to make a payment based upon the cost of the necessary works – thereby avoiding the need for a landlord to sue for damages and prove its 'true loss'. Such clauses are sometimes (but not always) drafted on the basis that the landlord's surveyor must certify the cost of the works. Depending on the precise form of words used, the Scottish courts have found that these clauses are enforceable. In England, the authors are not aware of any reported decisions on such clauses but the prevailing view is that they are not enforceable (since they represent an obvious means of trying to circumvent the statutory cap).
So, which jurisdiction has the best approach? The answer probably depends upon whether you are a landlord or a tenant – and also upon the nature of the particular issue in dispute. There is much to be said for the certainty provided by the codified approach to quantification in England. But reports on diminution in value can be expensive and disputes between competing experts cumbersome to resolve. Some in England may take the view that the flexibility (and realism) in the Scottish approach is to be preferred.
It's probably a score draw on the dilapidations front then. Enjoy tonight's match.
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