Dilapidations: mechanical and electrical specialists

Friends and M&Es

5 January 2011

Mechanical and electrical (M&E) specialists are often overlooked within the dilapidations process, says Stephen Lemmon, but they can make a significant difference to the size of the eventual claim

In these times of austerity, landlords are looking to save money and recoup costs wherever possible, with dilapidations claims becoming vital to this money-saving effort. But even within the dilapidations process, landlords are looking to make savings.

In this vein, specialist M&E engineers are often deemed to be an unnecessary luxury, with the landlords relying on building surveyors (BSs) to manage the entire dilapidations claim for them. But this can be a short-term view – while upfront costs may be lower, the absence of an M&E engineer can reduce the size of the eventual claim.

Many leases allow for landlords to claim from the tenant any costs associated with the preparation of a dilapidations claim and so it is usually worth commissioning a specialist engineer to prepare a schedule covering the M&E elements. But even where these clauses don’t exist, any upfront costs can be a small proportion of the total fees involved.

Considerable sums can be claimed from the M&E elements of dilapidations claims. But how large are these in relation to an overall negotiated settlement? Our research has shown this can be around 21% for office-related claims (79% relating to the fabric) and 36% for claims on industrial premises.

Two recent examples demonstrate how an M&E specialist added significant value to a dilapidations claim:

  1. The landlord considered the dilapidations claim on a small-scale industrial unit to be simple enough that an M&E expert was not required. However, he was convinced to allow a fee for a site visit by an engineer. The M&E expert identified that a high-voltage transformer had been fitted to the customer’s side of the electricity meter rather than the supplier’s. This subtle positioning meant that it was the tenant’s responsibility to remove the transformer and reinstate the original low-voltage supply, works which cost approximately £40,000. Without the M&E specialist, this may not have been noticed and the landlord would have been liable for this cost.
  2. The M&E services of an office building had recently been refurbished by the tenant and the landlord felt an engineer wasn’t required. However, without an upfront fee, an M&E specialist visited the premises and found an issue with the heating system. During the refurbishment, three old boilers had been replaced with two new ones on the assumption that they were of sufficient capacity to heat the building. However, due to the systems involved, it was found that a third boiler needed to be installed at a cost (to the tenant) of £25,000. The landlord subsequently paid for the M&E expert’s time due to the money that had been saved.

So if costs and understanding are reasons why landlords don’t call in M&E experts, why don’t BSs? I suspect that, for some, it is because that are expected to have a certain level of M&E knowledge and don’t want to admit that they need advice. I also appreciate that although the additional fee is generally recoverable, the quantum is lost in the course of a commercial settlement.

Specific expertise

What’s also important is that an M&E dilapidations expert is appointed and not just a general M&E engineer. I see many schedules that are prepared poorly by the landlord’s team and sometimes the engineer has clearly not read the lease. How can he allege breaches of covenant if he does understand the standard of repair contemplated by the parties or what is required by the reinstatement and yield-up provisions?

I also see confusion over whether an item is a breach of the repair or the reinstatement clause. Sometimes this is because the engineer knows, for example, that a boiler needs to be reinstated to working order but does not realise this is a breach of the repair clause and incorrectly puts it under reinstatement. Regardless of the difference to the ultimate value of the claim, time and money can be wasted in re-drafting and re-serving the schedules.

While landlords looking to make savings and efficiencies is nothing new – and should be encouraged – it is clear that the failure to retain an M&E dilapidations expert can often be a false economy. An initial saving can very quickly become a costly omission.

Stephen Lemmon is an Associate Engineer with commercial building consultancy Malcolm Hollis

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