Briefing 22 December 2016

Clarity and Conduct: new RICS Dilapidations Guidance Note

Author:

Sarah Pope

Senior Associate
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Summary and implications

Disputes that arise out of the repair and condition of leasehold premises are something that all commercial landlords and tenants have to turn their minds to regularly.

The RICS has published its latest Dilapidations Guidance Note (7th Edition) which is effective from 1 December 2016. Whilst the guidance is not legally binding, it does set out ‘recommended best practice’ and therefore it is expected to be followed by all surveyors when they approach dilapidations claims.

This revised edition of the guidance seeks to clarify some key areas, which are quite revealing in identifying the trends in the dilapidations world at the moment and the direction dilapidations disputes appear to be taking.

The guidance contains some new sections and some expansion and clarification on sections included in the 6th edition, including a brand new section on diminution valuations, a shift in focus in the section on break clauses, some basic guidance on supersession and generally an emphasis on resolution over litigation.

Diminution valuations

This is a completely new section and the fact that a whole section has been dedicated to this area shows how these valuation reports are increasingly being used in dilapidations claims, not just when the parties enter litigation but also as a tool to aid resolution.

The guidance discusses the two valuation methodologies that can be used to calculate the diminution in value of a landlord’s reversion due to the condition of the relevant property and sets out the best practice approach from taking instructions to producing the valuation report.

Break clauses

The section on break clauses is not new but it does have a new emphasis, in particular, when the role of the surveyor is addressed.

There are several ‘health warnings’ in this section, which are primarily concerned with the importance of the interplay between the surveyor’s role and the role of a solicitor. This is to ensure that care is taken to see that the client’s objectives from a legal point of view and in relation to the condition of the premises are balanced.

In addition, guidance is provided on what the expected role of the surveyor in relation to break options that are conditional on vacant possession or on the covenants relating to the repair and conditions of the premises having been fully complied with.

Supersession

The specific guidance on supersession has been inserted into the section on dilapidations claims at the end of the lease term. This includes basic guidance on what is likely to be classed as supersession.

As part of those examples, it is interesting to note that there is reference to work required to conform to Minimum Energy Performance Standards, which are due to be introduced in April 2018 and therefore must start to be considered when approaching dilapidations claims.

Conduct and settlement

There is expanded guidance on the settlement of disputes, covering various forms of alternative dispute resolution with only a small part of this section devoted to litigation.

In addition, there is a clear warning not to exaggerate claims or include breaches in the schedule of dilapidations or quantified demand that do not exist, as this could put the client at risk when the issue of costs is decided by a court.

However, the emphasis of the new guidance is very much on how disputes can be resolved without resorting to litigation and on what a surveyor’s role in that process can and should be.