Dilapidations Protocol. 1 January 2012
To download the Dilapidations Protocol click here
Dilapidations Protocol – Formal Adoption under Court Rules
The Dilapidations Protocol has been made and came into force on 1 January 2012. The material will appear on the CPR website shortly in the preview section, and be incorporated in the consolidated version on the common commencement date 6 April 2012.
What went before?
The Dilapidations Protocol was first thought about in 2000 following the introduction of the CPR and the concept of pre action protocols in 1999. The concept was to concentrate the parties’ minds at an early stage to aid settlement and also to prevent exaggerated claims being made by landlords.
The first edition was introduced by the Property Litigation Association (PLA) in Spring 2002 and was endorsed by the Royal Institution of Chartered Surveyors (RICS) as ‘best practice’ in its Dilapidations Guidance Note of that year. At that point the PLA asked the Government (then Department for Constitutional Affairs) (DCA) for the Protocol to be adopted under the CPR. The DCA was at that time consulting on the general Practice Direction – Pre Action Conduct (PD-PAC), so the adoption of the Dilapidations Protocol was put on hold, although the DCA did suggest various amendments to the Protocol.
In September 2006 the Second version of the Protocol was issued. This moved the timing for the service of the landlord’s diminution valuation back from the start of the pre-action process to just before proceedings were issued. This was to counter arguments that to do it as a first step was too expensive for many claims. The counter to this was the introduction of the landlord’s surveyor’s endorsement that the amount being claimed was ‘a fair assessment of the landlord’s loss’.
This endorsement caused problems for building surveyors who were preparing the schedules and was replaced in the Third Version in May 2008 with an endorsement relating to the works required and the cost of those works.
The PLA presented the Protocol to the Civil Justice Council in Spring 2009 and the CJC recommended to the Master of the Rolls that it should be adopted. Since then the PLA and RICS have been liaising with the CJC and the Rule Committee about the precise wording of the Protocol.
Reasons for changes
The CJC and Rule Committee have made various changes to the Protocol so that it complies with their general criteria for protocols. These are that protocols:
- Should not include law
- Should not be repetitious of the Practice Direction – Pre Action Conduct (PDPAC)
- Should not express themselves in different language from other protocols and rules
- Are general guidance and should be kept as short as possible.
What has changed?
The Protocol is now a lot shorter. The CJC have removed a lot of the changes that were suggested by the DCA(!) e.g. the definitions of repair, reinstatement etc, and Annex A (wording of s18(1)). Many of the paragraphs have been summarised and amalgamated although the substance has not changed.
The word ‘serve’ has been replaced with the word ’send’ throughout as serve has connotations elsewhere in the CPR. Similarly the landlord’s ‘claim’ has been replaced by the landlord’s ‘quantified demand’ to differentiate it from a formal claim under the CPR.
The timings have been rationalised so that they are consistent i.e. all ‘within’ certain periods rather than some ‘within’ some ‘from’ etc. It has also been made clear that ‘surveyor’ includes ‘any other suitably qualified person’.
Landlord’s and tenant’s endorsement
The wording of the landlord’s endorsement has been altered slightly, firstly to reflect the judicial comments in PGF II SA v Royal & Sun Alliance Insurance PLC 2010 EWHC 1981 (TCC) to make it clear that it is the landlord’s intention at the end of the term that we are concerned with (not thereafter) and to provide for the case if the landlord itself gives the endorsement. The wording is set out below. This also reflects the fact that the surveyor is relying on what he has been advised is the position by the landlord.
Landlord’s endorsement
- 3.6.1 all the works set out in the schedule are reasonably required to remedy breaches referred to in paragraph 3.1 above;
- 3.6.2 where endorsed by the landlord, that full account has been taken of its intentions for the property;
- 3.6.3 where endorsed by the landlord’s surveyor, that full account has been taken of the landlord’s intentions for the property, as advised by the landlord; and
- 3.6.4 the costings, if any, are reasonable.
It is the intentions of the actual landlord that are referred to. This includes whether the landlord intends to demolish the building or if there are any supersession issues e.g. the surveyor cannot sign the endorsement to say that ceilings need to be repaired if he knows the landlord will take them out to change the lighting.
The only substantive change to the Protocol is the introduction of an endorsement by the tenant’s surveyor. This has been mooted for some time and the CJC were strongly of the view that there should be parity of endorsements. The tenant’s surveyor should not seek to go in at a lower cost that he honestly believes is the case, or to take out works that he considers actually should be done. The tenant’s surveyor is, however, answering the landlord’s claim and does not have to point out other items that may need to be done if they have not been required by the landlord. The wording of the tenant’s surveyor’s endorsement is set out below. Obviously, the tenant’s surveyor may not be told by the landlord what its intentions are, but it should have a reasonable idea as to what would be the best thing to do with the building and what he ‘reasonably believes’ would be the landlord’s intentions.
Tenant’s surveyor’s endorsement
- 5.5.1 the works detailed in the Response are all that were reasonably required for the tenant to remedy the alleged breaches of its covenants or obligations;
- 5.5.2 any costs set out in the Response are reasonably payable for such works; and
- 5.5.3 account has been taken of what the tenant, or tenant's surveyor, reasonably believes to be the landlord's intentions for the property
Diminution valuation
The requirements in relation to diminution valuations have not changed but the wording has been summarised. The basic position is still that:
- If the landlord has done the works the starting point is that a valuation is not required
- If the landlord has not done any works the starting point is that a valuation is required
- If the landlord has done some but not all of the works or intends to do all, the starting point is that a valuation is required and also that the landlord provides information as to what works it is going to do, when, and provides estimates/tenders etc.
Non-compliance
There is one area where the Protocol does overlap with the PDPAC. This is in the reference to where the court is looking at sanctions for non-compliance with the Protocol. It was felt very strongly by the RICS that there should be specific reference to this, and the fact that where the court is considering this point it will be concerned ‘about whether the parties have complied in substance with the relevant principles and requirements and is not likely to be concerned with minor and technical shortcoming’.
This has been emphasised because both the PLA and RICS have heard anecdotal evidence that some surveyors are relying on minor technical breaches of the protocol to argue that the other side cannot pursue its case. If a landlord serves his schedule a week after the recommended time scale that does not mean that he can no longer bring a claim. The issue of compliance will go to costs/other sanctions at the end of the day.
There was also some discussion as to whether the Protocol should deal with the question of costs. However, the view of all parties involved in the drafting was that this is an issue for the trial judge at the end of the matter. He will take everything into account and make a decision. It is not the place of Protocols to be prescriptive on the issue of costs. Whether the CJC wishes to consider bringing other, pre-action, sanctions for parties who breach protocols is a separate issue which, hopefully, will be looked at at some point.
Commencement date
The Protocol will be formally adopted on 1 January 2012. It is important that those already contemplating dilapidations actions should look at the changes now, in particular, the requirement for the tenant’s surveyor’s endorsement.
RICS Dilapidations Guidance Note
At the same time as finalising the Protocol, the RICS) has been working on a new version of its Guidance Note for Dilapidations in England and Wales.
The draft Guidance Note is available for general consultation and is due to be published as soon as possible after the Dilapidations Protocol.