Dilapidations - Problems and options for settling negotiations
There are numerous problems for a Tenant dilapidations surveyor when negotiating and trying to settle dilapidations claims, however, there are ways to achieve a fair settlement even when positions appear entrenched and a fair deal appears far off. We have set out below a few points worth considering.
The impact of Lease clauses which permit the recovery of professional fees for Landlord dilapidations surveyors can potentially create an uneven playing field and enable the Landlord surveyor to have significant leverage in the negotiation. Such clauses, once rare, are now commonplace in modern institutional Leases.
There is the danger that if a Tenant surveyor disagrees with a point in a Landlord’s claim, the Tenant may face the prospect of increased Landlord fees if the Landlord dilapidations surveyor disagrees, even if that position is a valid point, or has created a “50:50” argument.
Another issue is that a claim may begin at say £200,000 but settles at say £50,000, the question arises, how much of the Landlords surveyors / solicitors fees for arguing the £150,000 reduction, which was shown not to be valid, should be recoverable?
Such costs will be difficult for Tenant businesses to swallow, most of whom will be seeking to minimize costs and may be seeking to downsize due to wider economic downturns, such as the financial crisis or Covid-19 pandemic.
Most smaller claims are unlikely to ever reach court, so Tenant dilapidation surveyors are charged with getting the deal done, so they must tread carefully to avoid encouraging excessive Landlord fees. It is often worthwhile reminding Landlord surveyors that their fees – which are additional losses for the Landlord - should be proportionate, or ‘reasonable’ if the Lease includes such a statement.
Negotiation is an art in itself, but if you just can’t get the Landlord dilapidation surveyor to budge despite a fair argument, what is the answer when deadlock occurs?
Alternative Dispute Resolution (ADR) offers a good option, especially a binding decision by a neutral surveyor under Early Neutral Evaluation (ENE). This approach can settle a dispute relatively quickly, allowing parties to move on and with the fee split and known in advance.
ENE can also be carried out unilaterally by one or other side and disclosing the findings to the other side can often be useful in letting the other side know the merits of their surveyor’s arguments.
Section 18 Diminution Valuations offer another potential route to settlement. The lack of their use is perhaps explained by their additional cost, plus many Tenant dilapidations surveyors are unaccustomed to using them, plus they may be reluctant to engage further specialists from different firms.
These options will incur additional expense, so the claim normally needs to be large enough to warrant it or the parties sufficiently far apart in their positions after a few rounds of negotiation. A dilapidation surveyor also needs experience to assess the correct moment to obtain additional advice.
In addition, all too often, dilapidations surveyors fail to meet in person when their views are entrenched, as prescribed under the Pre-Action ‘Dilapidations Protocol’, whereas meeting face to face can frequently get a deal done.
In the aftermath of Covid-19, many professionals will be used to Zoom or Microsoft Teams video conferencing, and this might prove useful, especially for reducing the time cost of travel and attending follow up site meetings for small claims, especially for regional disputes where surveyors can be located hundreds of miles apart; for example, dilapidations surveyors in Bristol operate across Devon, Wiltshire, Gloucestershire and Hampshire.
Our advice is that whilst negotiations can become entrenched, an experienced Tenant dilapidations surveyor has other means of achieving a fair settlement which can avoid the claim going legal, which can be very costly for their client.
At Devonshire Partnership, our specialist dilapidations surveyors have extensive experience of dilapidations claims across retail, industrial and office sectors, operating nationally from our South West Bristol office and London and South East office.