The Dilapidations Protocol

What the Protocol is

Pre-action protocols exist to make parties exchange enough information to settle without a trial. The Dilapidations Protocol was adopted into the Civil Procedure Rules in 2012 after several years as a voluntary code written by the Property Litigation Association. It applies in England and Wales to claims for damages for breach of the repair, reinstatement and decoration covenants at the end of a commercial lease.

It is not an RICS document, though the RICS guidance note on dilapidations expects members to follow it. The guidance note and the Protocol are read together: the Protocol sets the procedure, and the guidance note sets the professional standard for the surveyor. See the RICS dilapidations guidance note for that side of the picture.

The timetable

The Protocol runs to a fixed sequence. The periods are stated as reasonable times and can be extended by agreement, but the court will ask why if they were not met.

1. The lease ends, by expiry or by a break. The landlord inspects, ideally before the tenant leaves.
2. Generally within 56 days of the lease ending, the landlord serves the schedule of dilapidations and the quantified demand.
3. Usually within 56 days of service, the tenant serves a response, item by item, with its own figures.
4. Generally within 28 days of the response, the surveyors for each side meet, without prejudice, to narrow the dispute.
5. If no settlement follows, either side can issue proceedings. The court then checks whether the Protocol was followed.

The schedule and quantified demand

The claim is made up of two documents served together. The terminal schedule of dilapidations lists the breaches and the works. The quantified demand states the money claimed. The Protocol requires the schedule to be in a form that lets the tenant answer it item by item, and it sets out what each document must contain.

• Each alleged breach, with the lease clause relied on.
• The remedial work the landlord says is required for each breach.
• The cost of that work, item by item, at a realistic rate.
• A quantified demand totalling the works and any consequential losses (losses that flow from the breaches rather than the cost of the works themselves, such as rent lost while the repairs are carried out and the professional fees the lease allows).
• An endorsement by the surveyor that the schedule reflects the opinion of the surveyor and that the works are reasonably required.
• An endorsement by the landlord, or on its behalf, that the quantified demand reflects the loss the landlord believes it has suffered and takes account of its intentions for the building.

A landlord who wants a schedule prepared to this standard can start with the terminal schedule of dilapidations service.

The tenant response

The response is the answer of the tenant to each item in the schedule. The Protocol expects it to be as detailed as the schedule, and it is where the three largest reductions in a claim are usually made: items outside the lease, items superseded by the works of the landlord, and the cap on damages in Section 18 of the Landlord and Tenant Act 1927.

• A reply to every item, stating whether it is admitted, denied or admitted in part.
• The lease clause or evidence relied on for each denial, including any schedule of condition or licence to alter.
• A counter-figure for each item admitted in part, with the basis of the figure.
• Any point on supersession where the works of the landlord would make the repair pointless.
• Any point on Section 18 where the loss in value of the landlord interest is below the cost of the works.
• An endorsement by the surveyor acting for the tenant, mirroring the landlord endorsement.

A tenant who has received a schedule can have the response prepared through the dilapidations claim defence service. The Section 18 guide and the supersession guide explain the two statutory and common law limits in detail.

The endorsements

The endorsements are the part of the Protocol most often overlooked and most often decisive. Each document carries a signed statement, and a surveyor who signs a schedule that overstates the claim, or a response that denies items plainly made out, puts his or her professional position on record.

The meeting and settlement

Within 28 days of the response the Protocol expects the parties, usually through their surveyors, to meet without prejudice. The meeting works through the Scott schedule, the table that sets each item against the position of both sides, and tries to agree as many items as possible. Figures agreed at the meeting cannot be used in court if the claim proceeds, which is what allows both sides to move.

Where the parties remain apart on value, the Protocol encourages a diminution valuation from a valuer before proceedings. Where they remain apart on principle, mediation or another form of alternative dispute resolution is expected before court. Most claims settle at or soon after the meeting. For how the negotiation then runs, see the guide to the dilapidations claim.

Costs consequences

The Protocol has no penalty of its own. Its force comes from the Civil Procedure Rules, which allow the court to take non-compliance into account when it decides who pays the costs of the proceedings and how much interest is added to the damages. A landlord that served a schedule a year late, or a tenant that sent a two-line denial, can win on the merits and still pay the costs.

The costs of a contested dilapidations claim commonly exceed the amount in dispute on smaller units. The Protocol is therefore not a formality. It is the cheapest route to a settlement figure, and the side that follows it holds the stronger position if the other side does not.

What landlords should do

• Inspect before the tenant leaves so the schedule records the condition at the end of the term.
• Serve within the 56 days with the quantified demand attached. A schedule without figures gives the tenant nothing to answer.
• Price items for the location and keep the scope proportionate. An overstated schedule costs credibility and time.
• Decide what you intend to do with the building before you sign the endorsement, because that intention caps the claim.

What tenants should do

• Acknowledge receipt and nothing more until the lease and the evidence have been reviewed.
• Use the 56 days. A short letter denying liability is not a Protocol response and weakens the costs position.
• Raise Section 18, supersession and any schedule of condition in the response, not later in negotiation.
• Attend the meeting with the surveyor instructed. Most claims settle at or soon after it.