Dialogue and disputes

There may come a point where further dialogue will not be productive, due to irreconcilable differences or because one party is ignoring the other. At this point, an escalation of the action is required and will usually involve placing the dispute on a more formal basis. In a situation where an agreement cannot be reached, the advisers should identify the issues in dispute, explain why there is a dispute and both sides should then identify the way in which the dispute should be resolved.

Non-alternative dispute resolution (ADR) methods of dispute resolution relevant to dilapidations claims include:

• further negotiation;
• making a claim in court proceedings for the remedy sought (considered in greater depth under Landlords’ remedies and Tenants’ remedies);
• insolvency, where there is a specific sum due and unpaid;
• self-help (for example, where the landlord can and wants to effect forfeiture, through peaceable re-entry or, if the landlord is in breach, by the tenant carrying out the work and reclaiming the cost by setting it and any other losses suffered against monies due to the landlord).

Alternative dispute resolution

The Civil Procedure Rules (CPR) state that the parties should consider whether some form of alternative dispute resolution (ADR) would be more suitable than litigation and there are certainly a number of compelling incentives to resolving a dispute without recourse to the court.

One of the objectives of the CPR is to avoid litigation and consequently, there is an expressed intention to refer litigation to ADR.

The main forms of alternative dispute resolution (ADR) are:

• arbitration;
• independent expert determination;
• mediation;
• early neutral evaluation (ENE) in a substantial claim.

Dilapidations disputes are ideal for ADR since, in many cases, the disputes that arise are over relatively minor issues which, with a bit of guidance from a third party, can be resolved without recourse to the courts. In addition, ADR is likely to be much more cost effective than going to court.

RICS has a highly regarded Dilapidations Dispute Resolution Service. Their panel of dilapidations specialists (who have all passed the rigorous training and assessment requirements of RICS), offer arbitration, expert determination, mediation, adjudication and expert witness services. Where a dispute exists and there is agreement from all the parties concerned they may apply to RICS for the appointment of one of the dilapidations panel experts. Application forms are available from the website.

In addition, RICS has initiated a scheme enabling dilapidation disputes to be resolved by expert determination. In this scheme, which came into operation in April 2004, the parties to a dispute will jointly contract with each other that they will be bound by an expert’s determination of the point in question. The expert will then be selected by the RICS president and instructed by the parties to consider the merits of the dispute. The expert can be instructed to consider as much or as little of the dispute as the parties desire and can be told to assume points that have already been agreed are correct. The expert will be able to consider the arguments and evidence provided by the parties and take steps to obtain additional information as they see fit. The decision, which will be binding on the parties, is likely to be available more quickly and at a lower price than through traditional litigation. Furthermore, the brief may be tailored to whatever the parties desire. However, the option of expert determination will still be significantly more expensive than having the two parties arrive at their own settlement, and should not be used simply to abdicate decisions during negotiations. For more information on the scheme, contact the RICS Dispute Resolution Service.

The Property Litigation Association also has a mediation scheme, by which members of the PLA who are mediators can be appointed by parties to a dispute.

As ADR is consensual it cannot be instigated unilaterally by application to the judiciary. Therefore, if either party is not in agreement to the ADR process then litigation is the only option. Surveyors should be aware, however, that a failure reasonably to consider the various ADR mechanisms (or a failure to respond or, unreasonably, to refuse to a request to engage in ADR) will put the surveyor at risk of a punitive costs award by the court. Helpfully, the RICS Dilapidations guidance note, 7th edition, quantifed demand and response templates (Appendices B and C) now include optional wording promoting the consideration and openness to ADR at an early stage.

PGF II SA v OMFS Company 1 Ltd [2013] is a timely lesson about the consequences of refusing to mediate (or in that case failing to respond to an early request to mediate). In summary the Court of Appeal upheld the judge’s decision which prevented the defendant from recovering its costs in circumstances where normally it would have been entitled to them (after its part 36 offer was accepted out of time).

Even when both parties agree to mediate they must demonstrate that they are fully engaged in the process, or else risk cost penalties that cannot be overturned. In Thakkar and another v Patel and another [2017] the judge at first instance stated that

‘in a case where bilateral negotiations fail but mediation is obviously appropriate, it behoves both parties to get on with it. If one party frustrates the process by delaying and dragging its feet for no good reason, that will merit a costs sanction.’ 

He then made a costs order on that basis. On appeal, the Court of Appeal refused to overturn the order. While acknowledging that it had been severe, it was not outside the proper ambit of the judge's discretion or wrong in principle.

Court proceedings

When a landlord becomes aware that a building may not have been properly maintained, it will generally contemplate having to resolve the matter by court proceedings (even if court action does not ultimately take place). Indeed, many remedies do involve the commencement of court proceedings. However, following the introduction of the Civil Procedure Rules (CPR) in 1999, parties contemplating litigation are positively encouraged to try to resolve disputes without commencing court action. The cost penalties imposed by the courts on those who fail to take reasonable steps to resolve a dispute act as encouragement. Consequently, there is every incentive to resolve a dispute without going to court, particularly if the landlord and tenant relationship is set to continue. An unresolved dilapidations dispute can be costly and divisive. See Civil Procedure Rules and the Dilapidations Protocol for more information.

Although there will always be circumstances where litigation cannot be avoided, and while a party may feel that it has a strong case, there are rarely any guaranteed outcomes in court proceedings. Moreover, given that valuation is not a precise science, there can be no guarantee that the amount for which the claim is issued will be the amount the court awards (see, for example, Business Environment Bow Lane Ltd v Deanwater Estates Ltd (2009) where the original claim pursued by proceedings was for a sum in excess of £400,000 (it had been higher than that before the court claim) and a sum of £1,073.50 was awarded inevitably leading to a dispute about costs). In addition, such proceedings take up a significant amount of preparation (for all those involved, including the landlord, tenant, surveyors and lawyers), involving significant expenditure that may well be disproportionate to the amount being claimed. Even if a litigant is successful, then quite apart from the risks of limited or adverse costs orders, the full cost is rarely recovered. These very points were emphasised in Simmons & ors v Dresden (Court of Appeal, May 2004). See also PGF II SA v OMFS Company 1 Ltd [2013].

The longer litigation proceeds, the greater the shortfall between the costs incurred and the costs likely to be recovered. In any event, recovery of costs depends not only on a costs order being made, but on the creditworthiness of the party required to meet it. In fact, whether or not the other party will be able to reimburse any costs incurred is just one of a number of practicalities that must be considered before making a claim. For example, can a claim be successfully enforced? And, is there value in preserving or a need to preserve the landlord and tenant relationship? Can any claim be funded? Inevitably, the surveyor will be asked to offer guidance on many of these issues, probably in tandem with the solicitor.

If the matter cannot be resolved and the tenant formally responds to the claim, then both sides should aim to identify and narrow the issues between them, as this will assist in any more formal dispute resolution process being conducted in a more directed, expeditious and cost-effective manner.

Court proceedings are commenced by a claim form. Often it will be submitted to court along with all of the information that the claimant will rely on when the matter comes to trial. The claim form must be signed by the claimant stating that it is to the best of their knowledge, a full and accurate record of the claim. Signing a statement of truth falsely or knowing that the information contained in the claim is incorrect is contempt of court and can lead to imprisonment. If a surveyor prepares an inaccurate schedule which is then litigated on, there is a risk that the surveyor’s client will be found guilty of perjury - highlighting the need for accuracy when putting the schedule together. Statements of truth are also required in expert reports and these carry the same threat of subsequent action should they be inaccurately prepared.

It is worth recalling at this point that the role of the surveyor will change. In the early stages of an instruction the surveyor will be acting in an advisory capacity, but in the context of court proceedings the surveyor may be asked to taken on an appointment as an expert witness (who then has a duty to the court that overrides the duty to the client). See the RICS practice statement and guidance note Surveyors acting as expert witnesses.