Protocols

The Property Litigation has been involved in the drafting of two Protocols, both of which can be downloaded from this page. [see column to the right.]

The Post-Action Protocol - Business Tenancy Renewals and The Pre-Action Protocol for claims for damages in relation to the physical state of commercial property at the termination of a tenancy - "The Dilapidations Protocol"

Dilapidations Protocol – Formal Adoption under Court Rules

Following years of negotiations on 14 October 2011 the Civil Procedure Rule Committee agreed that the Dilapidations Protocol should be adopted as a formal pre-action protocol under the Civil Procedure Rules (CPR).  This came into force on 1 January 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.

A version of this note previously appeared in The Estates Gazette

The Dilapidations Protocol - May 2008

Since its introduction in Spring 2002 the Dilapidations Protocol has substantially reduced the number of dilapidations disputes going to court.  If has been accepted by the property litigation industry, in particular the by the Property Litigation Association ('PLA') and the Royal Institution of Chartered Surveyors ('RICS'), as best practice for those operating in this area.

In conjunction with the RICS review of its Guidance Note on Dilapidations the PLA has carried out a review of the Protocol, in particular the requirements for the surveyor to give an endorsement that the amounts being claimed by the landlord are 'a fair assessment of the landlord's loss'.  There has been unease by some surveyors as to the nature of this endorsement, in particular with regard to the reference to 'loss'.

The revisions to the Protocol remove this wording from the endorsement.  Instead, whilst the Protocol still streses that the landlord can only claim its 'loss', the endorsement is more specific to the works.  In essence, the Protocol now provides that the surveyor preparing the schedule should confirm that the works in the schedule are reasonably required, any costs quoted are reasonable and that full account had been taken of the landlord's intentions for the property at, or shortly after, the termination of the tenancy.

The aim of this endorsement, which has been agreed by the RICS, is to prevent exaggerated claims being made by landlords and so aid sensible negotiations and early settlement of claims.

History of the Protocol
In July 2000, the PLA published a draft Pre-Action Protocol for Terminal Dilapidations Claims for Damages. It was sent to every member of the Association and to leading members of the Property Bar Association.

The document was the result of work by the PLA Sub-Committee on Law Reform over the previous year or so. Members were invited to consider it, provide feedback on it and, if appropriate, use it.

On 14th November 2000, a seminar was held in London at which a panel of surveyors, solicitors and judges were invited to express their views on it in answer to a range of questions. The PLA received many comments and a large amount of feedback on the Protocol from members, other solicitors, judges and, of course, surveyors.

All the comments and feedback were carefully analysed and, where appropriate, the Protocol was altered.

Given that members of the PLA represent landlords and tenants, we tried very hard to ensure that the Protocol is fair to both.

The Dilapidations Protocol - Version 1 - Spring 2002
The first version of the Protocol was launched in spring 2002 and was widely used by those in the industry. It was endorsed by the RICS as Best Practice and annexed to its Guidance Note on Dilapidations.

Since 2002 the Protocol has been used extensively in the industry and the PLA has continued to seek and receive feedback, in particular through a questionnaire of its members at its annual conference.

The Dilapidations Protocol - Version 2 - September 2006
Following feedack from the DCA on the Protocol (see below) and after further consultation with the RICS Working Party on Dilapidations, a second version of the Protocol was issued on 14 September 2006. Once again the RICS will endorse this in its revised Guidance Note on Dilapidations which is expected to be published in Spring 2007. This Protocol is not a draft and members and practitioners are encouraged to use it.


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