Preparing and serving a dilapidations schedule

It is important to establish and agree with the client if the schedule needs to be costed. This will arise if the client is seeking financial compensation (i.e. damages) for the alleged breaches of covenant, typically when dealing with landlords’ claims at the end of the term. The following approach to costing is therefore aimed at this scenario, although the principles and approach apply to other situations where costs are required.

Dilapidations claims are sometimes based on losses that the landlords have actually incurred; that is, they have done the work, paid their contractors and incurred the time that this took. In these instances, on the face of it, the evidence as to the landlord’s loss (e.g. invoices paid) will be the costs actually incurred in carrying out work that was the responsibility of the tenant (see Joyner v Weeks [1891] 2 QB 31).

However, such primary evidence of cost is not always a fair indication of a loss. For example, the costs may have been incurred at non-market rates or based on inappropriate methods of execution of work. Moreover, there might still be challenges as to whether or not an item of work was required at all and, even if works are carried out, there may still be arguments that any claim is capped by Section 18. However, if the cost has been reasonably incurred, it can be difficult to argue that it is not the appropriate measure of loss.

Much more typically, dilapidations claims are claims for damages where work has not been done for one reason or another. In such situations, the schedule should be priced with due reference to reliable and appropriate cost information. Appropriate sources would include:

• current Building Cost Information Service data and recognised price books (to which the appropriate regional variations should be applied);
• relevant and recent tender price information (on projects of a similar nature and size to that envisaged by the claim);
• quotes or estimates from building contractors for elements of the work, or against a full specification of the scheduled items.

Pricing should be undertaken in sufficient detail to enable an itemised breakdown of the costs to be provided in the event that the recipient of the claim challenges the quantum.

For larger and more complicated claims it could be appropriate for the client to engage a quantity surveyor to undertake the pricing process, the cost of which might be recoverable as part of the cost of preparing the schedule.

When compiling a claim for damages, providing an itemised breakdown of the individual costs of the breaches of covenant may be the first step in a two-stage process. As a second step, the surveyor might need to undertake an itemised review of the schedule to consider the landlord’s loss. The figure remaining once this process is complete represents the cost of works reflecting the landlord's loss to be claimed. Consequential losses are added and the schedule is ready for service.

It can be reasonable to generate budget costs based on professional experience, either as a supplement to or instead of the above. Rates and costs that most accurately reflect both the work content and the nature of the project should be applied.

Allowances for the cost of any access equipment such as scaffolding should be made, together with contractors’ preliminaries/overheads. It is not, however, acceptable to include provisional items or contingency sums. This is because it is not possible to claim a loss unless there is a quantifiable breach. While it is not unreasonable to include a contingency allowance in any normal budget, such an allowance does not relate to any quantified item and therefore cannot constitute a breach. If the works are already completed, any uncertain items will, as a consequence, have been quantified.

Where the work has been done

Where work has actually been undertaken, the invoices for this should be produced to substantiate the claim. Failure to do so, if there is no compelling reason for this, is likely to diminish the strength of that part of the claim, on the grounds that it is unsubstantiated.

Where the work has not been done

Where the work has not been executed, details of how the costs have been arrived at are needed, such as supporting quotations, and/or cost breakdowns where work has been estimated by the surveyor.

See Hammersmatch Properties (Welwyn) Ltd v Saint-Gobain Ceramics & Plastics Ltd (2013) for an example where there was a successful claim although the landlord had not carried out the works.

Where damages are not being claimed

The need to provide costings is part of the process of proving a damages claim. For interim repairs notices or terminal dilapidations schedules issued well in advance of the end of a lease (when it is probable or possible that the tenant will do the work), the intention is not (necessarily) to seek damages. In such cases, costing information is not required, at least not at this time.