Examining the Pre-Action Protocol for dilapidations, and planning ahead to assist tenants in preventing dilapidations.

Transcription

1 Five Counties Conference 2012 Wednesday, 29 February :00am - 5:00pm Wycombe Swan theatre, High Wycombe Dilapidations upon lease surrender Peter Tubberdy BSc, FRICS, University of Westminster Examining the Pre-Action Protocol for dilapidations, and planning ahead to assist tenants in preventing dilapidations.

2 Peter Tubberdy BSc FRICS MBEng Peter, a Chartered Building Surveyor and Building Engineer, is currently Senior Lecturer and Building Surveying Course Leader at the University of Westminster. He has 40 years experience of dealing with property of all kinds throughout the UK. Having grown up and gone to school in South East London (Peckham & Camberwell), he commenced his career in 1972 with the London Borough of Southwark, in 1978 he moved to Cambridgeshire and has resided there ever since. From 1985 until 2007 he was based in Milton Keynes, working initially for Milton Keynes Development Corporation as Principal Building Surveyor within the Estates Department with responsibility for all of the Corporation s non-housing property in a portfolio with a value in excess of 260 million. In the late 1980s the Estates Department was privatised and ultimately became the Milton Keynes office of the Michael Laurie Partnership, working under contract to the New Towns Commission. In 1993, following the termination of the contract to provide consultancy services to the New Towns Commission, Peter left the Michael Laurie Partnership, and along with two other former Milton Keynes Development Corporation employees established Construction Surveying Associates Ltd, a building surveying practice with clients such as Abbey National and Deloitte & Touche. In 2004 he left CSA Ltd. and joined the Milton Keynes office of Brown & Lee Chartered Surveyors as their building surveying partner. In March 2007 he resigned from Brown & Lee in order to take some time out and spend the summer with his wife who was recovering from cancer. During his surveying career he has been responsible for numerous inspections and surveys of a wide variety of residential, commercial, industrial and leisure related buildings throughout the UK and Channel Islands. He has also been personally responsible for the preparation of feasibility studies, the production of sketch plans, working and detail drawings, specifications, maintenance schedules, schedules of condition and schedules of dilapidation. He has also, on many occasions, performed the roles of Party Wall Surveyor and Expert Witness in litigation cases for both clients and the County Court. In addition to the experience he has gained as a practising Chartered Building Surveyor, he has for many years been an active member of the RICS. He has previously been a member of the committee of the RICS Berks, Bucks and Oxon Branch and Local Association, he is a past chairman of the RICS Great Ouse Area and RICS BB&O Branch and acted as an adviser to the Brooke Review Committee on the future organisation of the RICS. In respect of educational involvement he was, in the mid 1990s, a founding director of 3CPD who support the event today. He was also, for many years, an active member of the organising committee for the Oxford Briefing and has twice chaired the event. He is currently a co-opted member of the Buildings and Development subcommittee of the Finance and General Purposes Committee of the Council of Buckingham University, providing pro-bono advice to promote the effective use of the university estate in accordance with the university's strategic objectives and on long term physical planning and building policy. Since December 2007 Peter has held the position of Senior Lecturer in Building Surveying at the University of Westminster and is currently the Building Surveying course leader with overall responsibility for the delivery of the BSc (Hons) Degree in Building Surveying to both full time and part time students. Currently Peter enjoys giving back some of the knowledge he himself has gained from his varied career to both practising and the next generation of Chartered Building Surveyors as well as other members of the property professions.

3 EXAMINING THE PRE-ACTION PROTOCOL FOR DILAPIDATIONS, AND PLANNING AHEAD TO ASSIST TENANTS IN PREVENTING DILAPIDATIONS. In the current period of recession are you sure you are giving your clients the right advice? ONE BUILDING SURVEYORS VIEWS!

4 BUT FIRST THIS AFTERNOON THE USP! QUESTION - HAVE YOU GOT ONE?

5 MY USP IS - TUBBERDY

6 PETER E TUBBERDY BSc, FRICS, MBEng Chartered Building Surveyor & Building Engineer

7 SO BACK TO THIS AFTERNOONS TALK In the beginning!

8 QUESTION AS A SURVEYOR DO YOU KNOW WHAT YOU ARE DOING?

9

10 THE RED BOOK The Red Book -RICS Valuation Standards (March 2009) Author: RICS Valuation Faculty 6th Edition If you value property, land or machinery it is essential that you have a copy of the Red Book. This is because it contains all official RICS practice statements and guidance notes on valuation. These are mandatory for all RICS members and firms registered for regulation by RICS, and will ensure that you follow best practice and comply with the law

11 THE CHARTERED BUILDING SURVEYOR

12 The Chartered Building Surveyor s Portfolio Quote:- Chartered Building Surveyors are highly trained professionals offering expert and impartial advice on all aspects of land, property and construction for commercial companies and consultants, central government, and private individuals. Source RICS (

13 THE PROOF!

14 SO JUST WHAT ARE DILAPIDATION? Even some experienced surveyors can struggle to understand the principles of dilapidation so, hopefully, this afternoon will help you.

15 SO JUST WHAT IS DILAPIDATIONS? Does anybody here think they might know? Can anybody give me a definition?

16 DILAPIDATIONS DEFINED Many different attempts have, over the years, been made to define dilapidations and summarise exactly what the process is and why it has such potential significance to anybody occupying any property on the basis of a lease or tenure agreement. The word dilapidations is derived from two Latin words which can be interpreted to mean to pull stone from stone or to lay waste. Oxford English Dictionary State of bad repair, falling into decay

17 DILAPIDATIONS DEFINED cont The Surveyor s Handbook Dilapidations refers to a state or disrepair in property for which there is a legal liability to repair For the surveyor dilapidations refers to a state of disrepair in a property where there is a legal liability for the condition of disrepair. It is normal for this liability to be incurred by virtue of a lease which has placed an obligation on either the landlord or tenant to maintain and repair certain parts of the property.

18 DILAPIDATIONS OF PROPERTY SIMPLY DEFINED For a building to be dilapidated it must be in a state of disrepair. However when a building is in a state of disrepair it does not necessarily mean that it is dilapidated! Why? Because there has to be a legal OBLIGATION to repair, usually by means of a lease, and usually and More specifically the covenants contained in the lease

19 DILAPIDATIONS OF PROPERTY SIMPLY DEFINED cont If under the obligations contained in a lease (the covenants) a landlord fails to maintain the exterior of a building whilst the tenant occupies the interior, the tenant is going to be aggrieved when operating a business or living in what he believes is a badly maintained property because the building is in disrepair. If the tenant fails to look after the building, the landlord at the end of the lease may receive back a property of less value than he may have anticipated, because the building is in disrepair.

20 DISREPAIR 1 The starting point for a definition of disrepair: Anstruther Gough Calthorpe v McOscar (Atkins L.J. ) 1924 disrepair connotes the idea of making good damage so as to leave the subject so far as possible, as though it had not been damaged

21 DISREPAIR 2 Damage must be the subject matter of a covenant. Therefore, if landlords covenant to repair the structure and exterior. For liability, damage must be to the structure and exterior.

22 DISREPAIR 3 Change in physical condition: to a condition worse than it was at some time earlier. What is the date for comparison? Date of grant of lease to now. Date of construction of building to now.

23 DISREPAIR 4 DAMAGE Can be physical damage or Can be physical change

24 DISREPAIR 5 TEST Damage Damage to the subject matter of the covenant Deterioration from the previous physical condition

25 LANDLORD OR TENANT? Fact - The lease is a contract. SO The wording of the lease (contract) will decide who is responsible for what by way of the COVENANTS.

26 WHO S RESPONSIBLE?

27 SCHEDULES OF DILAPIDATIONS THE WHY? To provide evidence of non-compliance with a legal obligation. (A Legal Document!)

28 SCHEDULES OF DILAPIDATIONS THE WHEN? During the period of or at the termination a Lease. Thus Interim and Terminal Schedules.

29 SCHEDULES OF DILAPIDATIONS THE HOW? By reference to all the documentation and the property itself by a person(s) who understands what they are looking at preferably a building surveyor, followed by the preparation and service of the written document and negotiation by the parties and/or their representatives preferably two building surveyors.

30 WHO S RESPONSIBLE? As the surveyor you must interpret the documentation and decide who has responsibility under the lease (contract) and what breaches of contract have occurred.

31 BREACH OF CONTRACT OR NOT? Dilapidations is based on the law of contract. A lease is a contract between two parties based upon mutual agreement. The surveyors responsibility in matters of dilapidations is to decide whose responsibility it is to carry out the repair and whether a loss has occurred for which there is a remedy, based on the documents at his disposal, or according to the law of dilapidations.

32 BREACH OF CONTRACT OR NOT? cont For the purpose of this afternoon let us assume there are three elements necessary for a question of dilapidations to be decided. A Lease. A Property. A state of disrepair.

33 IDENTIFICATION OF A BREACH OF CONTRACT Subject to the precise terms of the lease, the covenants, there are potentially four areas in which liability for dilapidations can be found. These are: Reinstatement obligations, Redecorating obligations, Repairing obligations, and Statutory obligations (Regulations). These are known as the 4Rs

34 THE SURVEY Preparation! Documentation! Obligation! Disrepair! Damage! Diminution!?? Diminution!!

35 BEWARE THE LAWYERS! The Protocol for Terminal Dilapidation Claims for Damages The first version of the Pre-Action Protocol for Terminal Dilapidations Claims for Damages was adopted in spring This protocol was published as a final version in September 2006 by the Law Reform Sub-Committee of the Property Litigation Association. The protocol was commonly used by parties but was not originally adopted by the Courts in the Civil Procedure Rules. It has however, now been adopted by the Civil Procedure Rules with effect from 1 January 2012.

36 THE PROTOCOL Overview of The Protocol objectives: encourage the early exchange of information enable parties to avoid litigation by agreeing a settlement before proceedings support efficient management of proceedings where litigation cannot be avoided

37 THE SCHEDULE Layout as set out by the dictate of the Protocol. Example as per the RICS guidance note Dilapidations 5th Edition (June 2008) Appendix B. Remember, the preparation of a schedule of dilapidations is an allegation of breach of contract. Breach of contract is actionable unilaterally by reference to litigation, so that when a schedule is prepared it is a record of evidence that can be put before the court. A schedule of dilapidations is an actionable document, the Civil Procedure Rules (CPR) which cover litigation apply to dilapidation claims.

38 THE NEGOTIATIONS Should always be in accordance with the Protocol. Time scales Stock-takes takes Reviews Section 18(1) valuations

39 THE GUIDE TO BEST PRACTICE RICS GUIDANCE NOTE The 4 th Edition published This (the latest) 5 th Edition published The Dilapidation Surveyor s Holy Grail! You should seek this out in all cases! So do you have a copy!

40 ADVICE TO CLIENTS SIMPLE :- Comply with your covenants, then there should no basis for a claim in respect of dilapidations

41 BUT REMEMBER THIS! Diminution!

42 THE RED BOOK The Red Book -RICS Valuation Standards (March 2009) Author: RICS Valuation Faculty 6th Edition If you value property, land or machinery it is essential that you have a copy of the Red Book. This is because it contains all official RICS practice statements and guidance notes on valuation. These are mandatory for all RICS members and firms registered for regulation by RICS, and will ensure that you follow best practice and comply with the law

43 THEN THERE ARE SOME OTHER POINTS TO CONSIDER Remember the tactics, after all It s only a game! Then there are Break Clauses. Interim Schedule or Jervis v Harris procedures. Section 18(1) valuations. (The Red Book!) The constantly changing case law. (Remember beware the Lawyers!) Value Added Tax

44

45 LAND AND PROPERTY HMRC Notice 742 (March 2002)

46 10.10 Dilapidation payments The terms of a lease may provide for the landlord to recover from tenants, at or near the termination of the lease, an amount to cover the cost of restoring the property to its original condition. The amount is often agreed between the parties and may be based on a surveyor or contractor s estimate. A dilapidation payment represents a claim for damages by the landlord against the tenant s want of repair. The payment involved is not the consideration for a supply for VAT purposes and is outside the scope of VAT.

47 10.11 What if I refurbish a building having received a dilapidation payment? If, as a landlord, you carry out refurbishment works following receipt of a dilapidation payment, the input tax you incur in carrying out those works should be treated as follows: if the refurbishment works are used exclusively in making taxable supplies, then the related input tax is wholly recoverable; if the refurbishment works are to be used exclusively in making exempt supplies, then the related input tax is wholly irrecoverable; if the refurbishment works are to be used in making both taxable and exempt supplies, then related input tax is residual and should be recovered in accordance with your normal partial exemption method. See Notice 706 Partial exemption for more information.

48 AND FINALLY Whether, like me, they have a USP, or not, to get the very best advice on Schedules of Dilapidations or Schedules of Condition, whether in a recession or not remember:- There is no body better for a client to consult than a Chartered Building Surveyor.

49 ANY QUESTIONS