1. Q: How can solicitors add value before a schedule has been prepared for the landlord or served on the tenant?
A: Often, lawyers are not contacted about dilapidations disputes before the landlord is ready to serve their schedule, and sometimes much later than that. However, there are various issues which could benefit from collaboration before the schedule is prepared. These include:
Correctly identifying the parties
One should bear in mind that, since the lockdowns, the Land Registry has been very slow in processing applications, and it can take months for registered proprietors to be updated.
Establishing the tenant’s obligations
The deeds and other documents should be collated and reviewed. Lawyers can provide early advice on the interpretation of the tenant's obligations.
Landlords should also consider who else might be liable for the cost of disrepair, such as guarantors or former leaseholders under an Authorised Guarantee Agreement.
Landlord’s rights to inspect the premises
Solicitors can assist with the service of any formal notices required to gain access to the premises or even obtain injunctions to enforce the landlord’s rights of entry.
Timing
- lawyers can advise on any deadlines for requesting reinstatement or recovering the cost of serving a schedule.
- surveyors can help tenants consider their options with advice on how long possible works might take.
- tenants’ advisors should also check whether their client’s landlord has complied with any deadlines in the relevant deeds.
Carrying out the works before lease end
This is often impractical for commercial tenants and there is always the risk that the leaseholder will incur the cost of the repair and reinstatement and still face a claim.
I have had the opportunity to work closely with surveyors and project managers to ensure that every item on the programme was compliant with the tenant’s obligations and to carefully monitor the timing of the works to ensure completion by lease end. This included regular detailed inspections during the progress of the project. Often, costs prohibit this level of collaboration but if lawyers can make themselves available my experience is that excellent outcomes can be achieved.
Lease renewal
If the tenant has security of tenure and it is not clear whether the lease is going to be renewed, it may be helpful for a party’s surveyor and lawyer to discuss their client’s risks and options.
Section 18(1) of the Landlord and Tenant Act 1927
Early advice on section 18 might be helpful, particularly to tenants considering their options. A tenant should not incur the costs of doing the work itself if the landlord does not have a valid claim because, for example, the premises are ripe for major redevelopment.
Sub-tenants
A sub-tenant remaining on the premises may extinguish a landlord’s dilapidations claim. Whether the sub-tenant wants to remain in the property or not, a tenant client should be advised of the possibility of passing some or all their liability on to the sub-tenant.
Interim schedules of dilapidations
Surveyors may want to collaborate with solicitors regarding the service of schedules before the end of the term. Such schedules may influence the tenant’s plans or prompt early negotiation.
Paragraphs 3-4 of the Dilapidations Protocol confirm that a landlord may send a schedule before termination of the tenancy. However, if it does so, at the termination of the tenancy the landlord should confirm that the situation remains as stated in the schedule or send a further schedule within a reasonable time.
Early negotiation
There are many commercial reasons why early negotiation might be sensible. Collaboration is as valuable with regards to these negotiations as with later disputes, particularly as documenting settlements before a lease has expired requires careful drafting.
In conclusion, solicitors add value to the terminal dilapidations process before a schedule has been drafted or communicated to the leaseholder. Surveyors and lawyers should start working together in advance of that to maximise the effectiveness of any claim or defence.
2. Q: Can collaboration protect early advice from the risk of disclosure?
A: Yes, collaboration between surveyors and lawyers can protect communications regarding dilapidations from disclosure in later proceedings.
It is arguably the case that until a landlord has served its schedule of dilapidations and the tenant has responded to indicate that schedule is not agreed there is no dispute between the parties giving rise to what is known as litigation privilege. Early communications between a party and its building surveyor or expert valuer, or internally reporting within its organisation, will, therefore, potentially be disclosable to the other party in any later legal proceedings. Parties and their advisers should bear this in mind from an early stage, as documents may otherwise be produced which could be compromising in later litigation.
This may be avoided by holding meetings to convey potentially difficult messages, although recordings or notes of such meetings may also be disclosable. There is a tension between being able to control whether documents may have to be disclosed and a business’s external reporting obligations regarding its financial position.
Communications between a client and their lawyer will benefit from legal advice privilege even if there is no litigation privilege. Solicitors and barristers can, therefore, provide candid advice regarding dilapidations claims before a schedule is served, which may be helpful. However, that advice needs to be circulated within a client’s business unaltered if it is to retain its privilege.
This concern should, however, be considered in the context that most dilapidations claims do not reach the stage of disclosure in legal proceedings, which usually requires the Dilapidations Protocol to have been complied with, a claim to have been issued, a defence served, and case management directions handed down.
3. Q: What is your approach to collaboration in relation to mediation?
A: Last month we saw what appears to be the first reported decision where a court ordered the parties to participate in alternative dispute resolution against the wishes of one of the parties.
Since 1 October 2024, the Civil Procedure Rules have provided the courts with powers to order litigants to engage in ADR. These powers were introduced after the Court of Appeal decision in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ. 1416, which confirmed that, in appropriate cases, the court has the power to order parties to engage in ADR, including mediation.
In the recent case of DKH Retail Ltd and other companies v City Football Group Ltd [2024] EWHC 3231 (Ch), the defendant opposed mediation, stating it had no realistic chance of success as both parties sought a formal court decision to resolve the issues. The defendant argued it was too late for mediation given the significant expenses already incurred, the imminent trial date and the defendant’s limited availability. The court still ordered mediation on the claimant’s application, recognising the amendments to the CPR promoting ADR.
The DKH Retail Ltd case was not about dilapidations, but mediation works well in relation to repair and reinstatement disputes.
I have conducted dilapidations mediations without the building surveyor present, but that would be the exception rather than the rule and I would always want the surveyor available during the day in case questions arise. Having the surveyor in the room facilitates discussions between the parties’ experts, which are often the key to unlocking a deal.
Having valuers and other experts present may be helpful, particularly if their issue is key to the claim, but often having them available to be contacted for input during the mediation will be sufficient.
I have found that having a party participate remotely for the duration of the mediation can work fine. I have successfully mediated twice with a client attending on screen only. However, I am less enamoured with entirely remote mediations, which I have found more challenging.
In the past, I have not been keen for counsel to attend mediation unless the other side insists on bringing their barrister. I had several instances of counsel proving an argumentative presence to be neutralised, but as the bar has gained experience with ADR, they have proved more helpful.
I am now more positive about having a barrister attend when that is cost effective, but often the most powerful voice at a mediation is that of the client, who may be addressing their counterpart in person for the first time.
4. Q: Do parties need solicitors to document settlements?
A: As you all know, most dilapidations claims are resolved between surveyors, often with an exchange of correspondence, sometimes not even that.
However, when solicitors are involved in a dispute, typically any deal will be recorded more formally. Usually, I will use a short letter agreement or a formal deed of settlement and release.
There is value in detailing the terms of a settlement. If the parties’ relationship has broken down so far as to involve lawyers there is an increased risk that any ambiguity in the terms of a deal may lead to further disputes.
For example, I saw a letter recently settling the claim set out in the landlord’s schedule of dilapidations. This left open the possibility of the landlord raising items not included in the current schedule when my tenant client thought payment of the settlement sum would allow them to walk away from the premises.
If there is litigation, settlement agreements can document how that is to be ended. They can deal with issues such as payment arrangements, costs, confidentiality, and potentially tax issues.
