In England and Wales, where a commercial landlord intends to seek damages from a tenant or former tenant, for losses caused by the condition of a property at lease end, they must first comply with formal pre-action steps known in shorthand as the "Dilapidations Protocol" (Protocol), as set out in the Civil Procedure Rules (CPR). A failure to comply with the Protocol can result in sanctions from the court including pausing a claim while compliance is achieved or, more usually, negatively impacting a party in breach on the issue of costs. There is always a lot to consider when bringing a claim for terminal dilapidations, but here are our top five tips to ensure compliance with the Protocol.

1. Prepare and serve a schedule in accordance with the express terms of the Protocol

      The Protocol details how the schedule of dilapidations and quantified demand should be prepared. Each document should also be served within a reasonable time. This is generally 56 days after the lease comes to an end but could be longer in complex cases.

      2. Only seek to recover likely losses

          This may sound a bit noddy, but it is important to be clear on your heads of claim as things can and do change in the handover of property to a new tenant, redevelopment plans, long-term vacant property etc. The starting point for claims where the works have already been carried out will be the reasonable cost of those works. However, where a lease is at and end and a landlord has yet to undertake the works it is seeking to recover the costs of, from its former tenant, any claim for breach of repairing covenants will be capped at the loss in value of the property caused by the disrepair – this might not necessarily be (and often is not) the same as the cost of the works required to remedy the breach. If you intend to redevelop, the statutory cap will kick in and there will be no claim against the tenant.

          3. Substantiate any losses

            Under the Protocol, parties need only disclose documents required to be enclosed with a schedule of dilapidations. For the costs of works, this will be through invoices or detailed estimates. For other losses (such as legal and professional fees), the legal basis for recovering those losses should be provided to the tenant.

            4. Meet to negotiate

              The Protocol gives the tenant a reasonable time to respond to a schedule served in accordance with the Protocol. Generally, this will be 56 days after the demand was sent. The parties' respective building surveyors instructed to serve and respond to, the terminal schedule, should meet on a without prejudice basis within 28 days of receipt of the tenant's response to negotiate.

              5. Duties to consider alternative dispute resolution

                Both parties are required by the Protocol to have considered ADR to resolve the dispute, and litigation should be a last resort. It warns that the court will take into account the extent of the parties’ compliance with Protocol when making orders about who should pay costs under Part 44 of the CPR.

                If you are a landlord with commercial property in England and Wales involved with claims for dilapidations against tenants or, you are a tenant and have been served with a schedule of dilapidations by your landlord or, you have any concerns or queries about how these issues may impact you or your business, please do not hesitate to get in touch with our Real Estate Disputes team or your usual Brodies contact.

                Contributors

                Catherine Cross

                Senior Solicitor

                Lucie Barnes

                Partner