Preparing and serving a dilapidations schedule

Professional fees include those for:

• the design and administration of the works;
• preparing the schedule; and
• negotiating the claim.

Fees for the design, administration, and so on, of the works

Even in the absence of a specific clause, where there is a valid claim for repair work then there will also generally be a valid claim for the landlord’s reasonable costs involved in professional fees for the preparation of the specification, contract administration and so on.

Depending on the particular property involved and the nature of the work required, the landlord may require an architect or a surveyor to design, specify and administer the work. In addition, other specialists may be required (such as services consultants, structural engineers, CDM principal designers and occasionally perhaps also project managers and party wall experts).

In most cases, landlords will employ advisers to execute and manage the works. However, in circumstances where the landlord utilises resources within its own organisation to execute the work, the situation is less clear. If there is a discrete internal charging mechanism for the use of the colleagues that can be clearly shown to exist, then this may be a satisfactory measure of the damage incurred. If the costs are merely those of a salaried resource, this would be more difficult to prove, and as a liability that would have been incurred by the landlord anyway, should not generally be used.

The fees put into a claim must be a fair representation of the likely cost to the landlord of the services to be rendered (Plough Investments Ltd v Manchester City Council [1989] 1 WLR 1313). The test for the legitimacy of both the number of consultants required and the appropriate rates for their charges is what a reasonable client would do in this situation, if there was no possibility of seeking to recover the money by damages.

The costs should therefore represent the likely market fees that would be incurred for each element being considered. The use of the old RICS scale of fees is not likely to be a fair measure of this, as this has now been withdrawn, but it would be rare that a fair fee would be above its levels. (The RICS fee scale for building surveying was abolished in February 2000 at the request of the Office of Fair Trading.) Many of the larger landlords have agreed fee structures with their advisers, and when such parties are encountered, this is likely to form the basis of a reasonable fee to include in the claim.

Fees for preparing and serving the schedule

In most situations, the landlord will also incur surveyors’ fees for the task of preparing the dilapidations schedule and a costed claim against the tenant. It is necessary to check the lease in each case – most modern leases specifically cover the recovery of reasonable fees in this situation. Such clauses deal with recovery in different ways and it may be possible that they can only be recovered in certain situations, most commonly where a section 146 notice is served (even then the landlord must genuinely be seeking forfeiture for a valid claim for fees to exist) but not others. Even where there are clauses that allow a landlord to recover fees from a tenant, these must be reasonable in the light of the work done.

If there is no specific clause within the lease, the courts generally will not allow a claim for such costs. This is because the costs arise as a result of the need to ascertain whether any breaches of the leases have occurred, rather than as a consequence of the breach itself (see Maud v Sanders [1943] All ER 783). Moreover, where there are costs-recovery clauses in the lease, they are often strictly construed by the court (see Agricullo Ltd v Yorkshire Housing Ltd (2010)).

In preparing the dilapidations schedule, it may well be that additional specialist advice will be required, for example, from a mechanical and electrical services (M&E) engineer, or possibly a structural engineer. Indeed, as was highlighted in Simmons and ors v Dresden [2004] EWHC 993 (TCC), while the claim included mechanical and electrical items, in the absence of any report or evidence from an M&E expert, the court had to regard those elements of the claim as being not proven.

Furthermore, it may be necessary formally to serve the schedule on the tenant, and if solicitors do this a cost will be incurred. These additional items should be dealt with in the same manner as the main fee for preparing the dilapidations schedule.

Fees for negotiating the claim

If the works are carried out by the tenants, it is probable that the landlord will arrange for a surveyor to monitor the satisfactory completion of the tenants’ works on site. If works are not undertaken, the landlord will require the surveyor to negotiate a compensation payment in lieu of this. In such situations, it is less common for leases to have specific provisions relating to the recovery of these costs, and the valid approach to adopt in pre-litigation surveyor-to-surveyor negotiations is unclear.

As a general principle, costs incurred, even in contemplation of litigation but where litigation is not in fact instigated, are not recoverable.

If the case were to go to trial, however, in essence the court would have complete jurisdiction as to how the fees would be apportioned (according to section 51 of the Supreme Court Act 1981 and Part 44.4 of the Civil Procedure Rules). The general position is that ‘costs follow the event’ and the successful party to the litigation will have its costs paid by the unsuccessful party. However, the proportion of the costs paid will be assessed by the courts in the light of the conduct of the parties and will be in proportion to the matters in issue and the value of the claim. This means that if a landlord submits a dilapidations claim and is wholly successful, the tenant will pay both parties’ fees, but the costs the landlord will recover will only be in proportion to the issues of the case. That is, the fees must not be disproportionate to the amount of the actual claim made. In any event, there will rarely be a full reimbursement of costs, owing to the court’s ‘assessment’ of fees, which always results in a proportion being irrecoverable. If the landlord’s claim is unsuccessful, it will be obliged to pay not only its own advisers’ fees but, in almost all cases, also those of the tenants (which will again be assessed in the light of the magnitude of the issues of the case, and so on).

A specific aim of the Civil Procedure Rules 1998 (CPR) and the Dilapidations Protocol is to ensure that as many disputes as possible are resolved without litigation. The Rules and Dilapidations Protocol do not provide any direction on how to deal with the costs of a pre-action negotiation. Generally, costs incurred in complying with the CPR and the Dilapidations Protocol are not recoverable, unless there is an express provision in the lease which is framed in terms wide enough to cover such costs or litigation actually ensues, which of course one is generally trying to avoid.

A prudent tenant, in agreeing a settlement, may well decide to make an offer in respect of the landlord’s fees as well, albeit in suitably qualified terms, as that might facilitate a settlement, particularly if a landlord’s claim is generally reasonably balanced, with the majority of the items validly included and costed. If the tenant were to take the converse view, it would run the risk that the matter would be taken to court and it would face higher costs. However, a landlord who submits an exaggerated or speculative claim should not expect to receive any negotiation fees in an offer, as it would be unlikely to get them if it went to court.

The situation in respect to fees for the negotiation of settlement is further complicated by Part 36 offers.