Payment obligations and surveyors' certificates in dilapidations

Can a landlord's surveyor certify the cost of his or her terminal schedule of dilapidations and the tenant is bound to pay it without challenge? Yes, said the Court of Session in Coal Pension Properties Limited v Technip UK Limited.

The Clause

Clause 17.1.2 of the lease obliged the tenant to "pay to the landlord the reasonable sum certified by the landlord's surveyor as being equal to the cost of carrying out such work".

Demand

A terminal schedule was served and was negotiated over several months. The difference between the parties’ surveyors’ estimates of costs for the remedial works narrowed but remained significant. The tenant's main argument was that the schedule of dilaps did not properly consider the schedule of condition.

The landlord served its dilaps payment demand, including the landlord's surveyor's certificate.

Tenant arguments

The tenant made three main arguments.

(1) The demand was invalid as it included loss of rent.

(2) The landlord's approach to the clause was too literal: there was no way the parties intended that the tenant couldn't challenge items in the schedule. That could mean the tenant was made to pay for works that it wasn't liable for under the lease or that were too expensive.

(3) In any event, the tenant could challenge the certificate as not being reasonable if it didn't reflect the true facts or the legal obligations in the lease.

Court's decision

The certificate was valid, despite the mistakes in it and the letter enclosing it. The tenant was in no doubt about what it was designed to achieve.

The certificate's purpose, and the purpose of the clause itself, was to bring a speedy end to any argument about the tenant’s liability for terminal dilaps. If the certificate was not binding on parties, it would have no purpose at all. The parties cannot have meant that.

The Court did qualify this by saying that the sum certified must be reasonable, which means that it must be within the reasonable range of sums that might be arrived at by a surveyor acting in good faith and exercising professional skill. If there was an error in the schedule that took it out of this range, it may then be unreasonable. That was not, however, something that court was asked to consider here.

Certification of terminal dilaps exists in many commercial leases, and where it does, it seems there is an opportunity for landlords to achieve a quick resolution to their dilaps claims, provided the sum certified is within the reasonable range of sums. That caveat suggests that there is more to come for certification disputes.