Property Litigation update - March 2012

On 1 January 2012, the dilapidations protocol was, at last, formally adopted as a preaction protocol under the Civil Procedure Rules.

The protocol has informally been used extensively since its creation in Spring 2002 but it has long been the goal of many within the property professions, most notably the Property Litigation Association and the Royal Institute of Chartered Surveyors, to give the protocol formal status under the Civil Procedure Rules.

Up until now, whilst the dilapidations protocol has been used in many cases and has proved vital in constraining the values of dilapidations claims, there are many occasions we have seen in which, once the schedule of dilapidations and wants of repair has been served, little more than lip service has been paid to the protocol's rules.

However, this should now change as the dilapidations protocol has been given the same status as the well established and used pre-action protocols for construction and professional negligence disputes. As such, the Court may now be more inclined to levy sanctions against defaulting parties for failure to follow the terms of the dilapidations protocol before the start of a claim for damages for breach of covenant - although the new protocol makes it clear that the Court is unlikely to be concerned with minor and technical shortcomings. Those sanctions are most likely to take the form of costs penalties, although the Court might be persuaded to bar all or some of the claim if the breaches are sufficiently severe.

In tandem with the adoption as a formal pre-action protocol, various changes have been made to the dilapidations protocol (which was last updated in 2008). The key changes are summarised below:

Definitions

"Landlord's claim" has been changed to "Quantified Demand" to differentiate the claim made out in the schedule of dilapidations from a claim made in a statement of case under the Civil Procedure Rules.

"Serve" has been changed to "send" to differentiate giving the Quantified Demand to the tenant from serving Court proceedings.

Landlord's Endorsement

The landlord's endorsement must now confirm that:

  • all works set out in the schedule are reasonably required to remedy breaches of the tenant's repair obligations;
  • if endorsed by the landlord, full account has been taken of the landlord's intentions for the property;
  • if endorsed by the landlord's surveyor, full account has been taken of the landlord's intentions for the property, as advised by the landlord; and
  • any costings provided in the schedule are reasonable.

Tenant's Endorsement

A tenant's endorsement has also been created for the first time. This is in similar terms to the landlord's endorsement and is to be used as part of the tenant's Response to the landlord's Quantified Demand.

So, the tenant's endorsement must confirm that:

  • 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 under the lease;
  • any costs set out in the Response are reasonably payable for the required works; and
  • the tenant or the tenant's surveyor has taken into account what it reasonably believes to be the landlord's intentions for the property at the end of the term.

Going forward, the adoption of the protocol represents a change to the conduct of dilapidations claims as there is now a clear level of pre-action conduct required before the start of a claim for damages, with the prospect of penalties for default.

Given the experience in other areas of litigation which benefit from the presence of a preaction protocol, we can expect to see a renewed emphasis on reasonable pre-action conduct in dilapidations claims - hopefully with a consequent reduction in costs and an increase in the likelihood of settlement without the need for the intervention of the Court.

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