Over the past 24 months we have seen a marked increase in activity within the dilapidations sphere, as initially landlords sought to get tough with tenants but where more latterly, tenants have recognised their relative strength in a flat market and have applied pressure on the landlord through options to determine and renegotiation of rent free periods, etc.  Terry Bartholomew explains how an update to the Civil Procedure Rules seeks to prevent a resultant upsurge in litigation.

The increase in activity comes as no surprise. Traditionally, when the commercial property market is buoyant, tenants are afforded a degree of protection due to the natural state of the market.  For example, a willing supply of new tenants able to take on premises at the end of the Lease, and market competition; therefore there are various arguments at the tenants' disposal to counter against any damages claimed by landlords. Conversely if tenants leave their demise in disrepair they may be subject to a loss of rent claim if the landlord can demonstrate that there is a new tenant waiting to take occupation.
 
The situation in a flat market is somewhat reversed with landlords potentially having to:

• Accept long void periods between tenancies, even with properties put into good order and repair; 
• Suffer downward pressure on rents;
    and
• Offer high incentives on deals to attract tenants which has a resultant effect on investment yields.  
   

Against this background however, it must always be remembered that dilapidations claims are claims for damages and the burden remains with landlords to establish/prove their losses (damages) in order for a claim to be successfully pursued.  
 

We must accept that as long as the market remains as slow and static as it is at present, landlords will be making more claims for damages and tenants will be looking at more ways of extracting beneficial savings from landlords by looking at the terms of the Lease and in particular, break clauses. Almost as if anticipating a potential surge in litigation, over the past 18 months, the Ministry of Justice consultation on pre-action protocols has developed an update to the Civil Procedure Rules. This introduces a new Practice Direction on Pre-Action Conduct (PDPAC), which seeks to further reduce the prospect of litigation in dilapidations claims, by directing both parties to provide full disclosure of information at the earliest opportunity including, importantly for surveyors, disclosure on any fee agreement that it is conditional, that is to say subject to the outcome of the damages claim.

For more information please contact:

Terry Bartholomew
at our Orpington office
T  01689 888222
E  tbartholomew@calfordseaden.co.uk