Dilapidations: the Dilapidations Protocol

An evolving standard

4 February 2011

Jacqui Joyce runs through the history of the Dilapidations Protocol and asks: where we are now?

For a relatively short document the Dilapidations Protocol has produced a surprising amount of column inches and heated debate in its lifetime. To my mind, this is a good thing as it shows that those involved feel passionately about it and the dilapidations industry. It is also good that people have strong views and healthy discussion around what the Protocol has achieved, i.e. what is now, almost universally, considered to be a workable, fair and effective code of practice.

It is endorsed not only by the Property Litigation Association (PLA) but also RICS has recommended it as best practice in its most recent Dilapidations guidance note. Indeed, at the 2009 Dilapidations Forum Conference, no one in the audience was prepared to support a motion that the Protocol should be dispensed with.

Some history

A Protocol for dilapidations was first mooted in July 2000. This followed on from the changes to the Civil Procedure Rules (CPR) in 1999 when the other protocols, such as the Professional Negligence Protocol, were introduced following Lord Woolf’s Access to Justice report. It was also as a result of frustration with the way that dilapidations claims were being handled. I recall at that time, almost as a matter of course, proceedings were being issued by landlords and the parties would trundle their way through the process (incurring substantial costs). It was only when matters reached the stage of experts’ reports (which addressed the diminution in value issues under section 18(1) of the Landlord and Tenant Act 1927) that the parties seemed to focus on the true amount that the landlord could claim (i.e. its loss) and that any proper attempts to reach a settlement were made.

As with all protocols, its aims were to:

  • provide for the sharing of information as soon as possible
  • improve pre-action communications between the parties
  • set standards for the content of schedules and claims
  • improve pre-action negotiations
  • hopefully reach an early settlement.

Before the first version of the Protocol was issued in spring 2002, there was consultation about it both within the PLA and with members of the property Bar, the judiciary and surveyors. The first edition was endorsed by RICS as best practice and annexed to its guidance note. The Protocol did not remain a static document, however, and generated more feedback once it came into use. The PLA worked very closely with the RICS Working Party on Dilapidations throughout and the second version was issued in September 2006.

In response to requests from the working party, this put the time for service of the diminution valuation back in the process, but countered this by introducing the concept of the surveyor’s endorsement that the amounts being claimed by the landlord are ‘a fair assessment of the landlord’s loss’. It also incorporated suggested amendments put forward by the Department of Constitutional Affairs (DCA) who dealt, at that time, with adoption of CPR Protocols. Its comments came following the initial request by the PLA for the Protocol to be adopted. In particular, it required that the references to alternative dispute resolution in the Protocol be ‘beefed up’.

This endorsement caused unease among some building surveyors as to whether they could properly make an endorsement as to ‘loss’. There was substantial debate in the industry around this issue. This prompted further discussions with RICS and resulted in the agreement of a new form of endorsement which is in the third edition of the Protocol published in May 2008. While the Protocol still stresses 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 within it are reasonably required
  • any costs quoted are reasonable
  • that full account has been taken of the landlord’s intentions for the property at, or shortly after, the termination of the tenancy.

The aim of this endorsement is to prevent exaggerated claims being made by landlords and aid negotiations and early settlement of claims.

The PLA first approached the UK government in November 2002 to ask that the Protocol be formally adopted under the CPR. After the changes suggested by the DCA were incorporated, the issue of adoption was then put on hold as there was a formal consultation as to whether to have a general pre-action Protocol and abandon all of the current pre-action Protocols. This concluded in October 2008 and retained the existing Protocols, introducing the Practice Direction Pre-Action Conduct (PD-PAC) for those areas not covered by a specific Protocol.

Due to the complex nature of dilapidations disputes, the PLA considered that this ‘general’ Protocol was not sufficient to deal with these disputes and continued to press for formal adoption.

In 2009, the PLA presented its case to the Civil Justice Council, which has recommended to the Master of the Rolls, Lord Neuberger, that the Protocol should be formally adopted as a protocol under the Civil Procedure Rules. It is currently with the Rules Committee and the PLA is hopeful that adoption will take place early 2011. Over the years I have heard several comments about why the Protocol may not be appropriate – I shall deal with these now.

It was written by lawyers not surveyors and what do they know?

I feel I should defend my profession and say that actually a lot of lawyers know an awful lot about dilapidations, in particular the process and the law. We, of course, leave the ‘nuts and bolts’ of the works to the surveyors and issues of ‘loss’ to valuers. The fascinating thing about dilapidations is that it is such a complex mix of fact, law and opinion. However, the main point to make here is that throughout this process the PLA has worked very closely with RICS on the development of the Protocol. It is very much a collaboration between the two sides of the industry to come up with a document that is truly ‘best practice’.

Parties are taking ‘silly’ points

Another criticism is that people take silly technical points on the Protocol which holds things up and making it more expensive, e.g. complaining that small infringements of the timescales set out in the Protocol will prevent a party from arguing its case or produce sanctions. It is always a risk with any Protocol that parties will take these points. They should not, as the Protocol is a guide to what is reasonable pre-action behaviour. The PD-PAC sets this out when looking at whether compliance has taken place. The court should look at:

  • whether the parties have complied in substance with the relevant principles and requirements
  • the proportionality of the steps to be taken compared to the size and importance of the matter
  • the urgency of the matter.

The PLA specifically recognised that all of the steps in the Protocol may not be suited to a small claim for dilapidations. This is in essence a matter of judgement for the parties. The Protocol specifically states that it is not intended to be an exhaustive or mandatory list of steps or procedures to be followed regardless of the circumstances and that those will be determined by the facts of each case. It also specifically guides the parties to the PD-PAC in deciding what those steps should be.

It is not cost effective to follow it – my claim is only worth a small amount and it’s too complicated

This is a similar point to the one above. Parties who hold this view would no doubt have seized on the comments of His Honour Judge Toulmin CMG QC in the recent case of PGF II SA v Royal and Sun Alliance Insurance Plc and anr [2010] All ER (D) 318 (Jul) where he stated that the Protocol was an ‘extraordinarily detailed procedure’ (see also Just what is recoverable?). However, this is an extraordinarily complex area of law and practice. The Protocol actually follows the same ‘procedure’ of other Protocols, it is just because it is a complex area that this has been set out in some detail so as to define ‘best practice’. In my view, it is precisely because this has been done that has helped improve the way these matters are dealt with.

This is of course, tempered by the comments made above as to proportionality in all the circumstances.

In the PGF case, the judge commented on the endorsement required by the Protocol. He stated that:

“I note the wording of paragraph 3.6 of the Protocol. It appears to me to be misleading in so far as it suggests that the relevant date to ascertain the landlord’s intentions is at or shortly after the termination of the tenancy. For the reasons set out in my judgement, the date on which the landlord’s intentions are to be ascertained is the date of the termination of the tenancy. What is referred to as the second limb of s18 of the Act applies where, at the date of the termination of the tenancy, the landlord intends that, at that date (or before) or shortly thereafter, the premises will or have been pulled down or such structural alterations made therein as would render valueless the repairs covered by the covenant or agreement.”

This is correct. The intention that is relevant for the second limb of s18(1) is that of the landlord at the end of the tenancy as to what he will do at or shortly after the end of the tenancy. This endorsement, however, is not restricted to the landlord’s intentions in relation to the second limb, but is also designed to cover any other intentions that may be relevant to supersession issues, e.g. a surveyor could say you need to repair the ceilings as this is what is required under the lease but, if the landlord intends to rip them out so it can put in fancy lighting (so works superseded), then the surveyor cannot sign the endorsement. The Judge’s comments will be reflected in the version of the Protocol that is to be formally adopted.

The Protocol is just ‘jobs for the boys’ for lawyers

One criticism that has been made of the Protocol is that it gets lawyers involved when they are not needed. However, in my experience the days of issuing proceedings, almost as a matter of course, have gone. It could be said that in championing the Protocol that the lawyers were the prime example of ‘turkeys voting for Christmas’.

I already know all this – I don’t need to be told

I think this is true of a lot of surveyors and much of the Protocol is common sense. However, I think we sometimes forget that there are surveyors who do not deal in this area full time, or are maybe less experienced, and do not always fully understand its complexities. I have been told by several surveyors that they find it extremely useful to be able to refer to the Protocol as setting out the ‘standard’ way these things are done. It is also a useful tool to remind all involved of the importance of not exaggerating cases and being mindful of the restrictions of section 18(1).

It’s only a draft and has no standing

Well, actually, it’s not a draft. It is recognised as best practice by the PLA and RICS. It is true that it is not yet formally adopted under the CPR but a party would be very brave indeed to try and argue before a court that this somehow meant it was not the procedure that should have been followed.

To my mind, the main point that came out of the PGF case was that the Judge, and everyone else involved in that case, accepted without question that the Protocol was best practice and should be followed. There was no question that it was a ‘draft’. If all goes to plan with the adoption process (and there is no reason why it should not) then this point can be firmly put to bed.

In summary

As can be seen from above, the Protocol has not been a static code but has evolved over the last 10 years in response to input from those who practise in the area, particularly surveyors, and from bodies such as RICS, the DCA and the Civil Justice Council. In what I accept is my personal view, but which I believe is one that is shared by the vast majority of the dilapidations industry, the Protocol is now firmly established as setting out the ‘rules’ for dealing with these disputes.

Jacqui Joyce is Chair of the Property Litigation Association and a Partner in the Real Estate Disputes team at Thomas Eggar

Further information