Does the 'Dilapidations Protocol' afford diminution valuations any place post works completion?
The Pre-Action Protocol for Claims for Damages in Relation to the Physical State of Commercial Property at the Termination of a Tenancy ('the Dilapidations Protocol') clearly sets out that only if the landlord has not carried out all the works specified in the dilapidations schedule and does intend to carry out some or all of the works, then the landlord claimant should provide a formal diminution valuation unless, in all the circumstances, it would be reasonable not to.
Whilst the Protocol directs that defendant tenants must provide a diminution valuation and state their case for doing so, if tenant relies on a diminution defence, does a tenant defendant's diminution valuation have any relevance if landlord has attended all works that comprise the dilapidations claim?
The Back Story
Intent & direction
The Dilapidations Protocol, now encompassed by the Civil Procedure Rules pre litigation protocol, introduced a significant departure from traditional approaches to handling dilapidation disputes governed by Section 18 of the Landlord and Tenant Act 1927. A cornerstone of the Dilapidations Protocol is the assertion that a claimant landlord's attendance to repair works negates the necessity for a Section 18 diminution valuation to assess damages for property disrepair. Whilst the Dilapidations Protocol sets out to promote efficiency and practicality, it raises substantial considerations regarding the perceived necessity and efficacy of diminution valuations under Section 18.
Section 18 provides a statutory framework for courts to assess damages based on the diminution in property value resulting from a tenant's failure to uphold repairing obligations. This framework sought to direct consistency in assessing financial losses incurred by landlords due to disrepair, relying on professional valuation assessments to establish appropriate compensation.
The Assertion
Implied Redundancy
The Dilapidations Protocol implies that the attendance to repair works by the claimant landlord obviates the need for or applicability of diminution valuations, both in claim pursuit and defence, contrary to the pre Dilapidations Protocol approach, placing longstanding reliance on Section 18 valuations as a standard measure.
Those in favour of setting aside diminution valuation consideration argue that proactive repair actions mitigate immediate actual losses and so are an objective determination, encouraging tenant repairing covenant compliance in consequence. It has been considered, however, that a landlord's losses can exceed the cost of repair attendances alone, particularly where underlying issues may persist and so repair within the parameters of applicable statutory and precedent law may not be fully effective in restoring property value.
Mitigating Subjectivity
Permutations in consequence
The Dilapidations Protocol's preference for repair action cost consideration in determining claim sums over diminution valuation assessments seemingly seeks to employ objectivity into the assessment process, in order to achieve impartial and equitable outcomes. Diminution valuations had, pre Dilapidations Protocol, traditionally sought to serve as a measure to quantify financial loss independently of the claimant's remedial actions, however, modern practices have perhaps shifted to seek to utilise diminution valuations as subject means of evidencing loss or seeking to demonstrate plausible deniability.
By identifying repair attendance cost incurrence as the authoritative means of crystallising loss, the Protocol enables claimants to recover those costs having proven necessary to expend in order to remedy disrepair, without the applicability of a 'cap', as might otherwise have been determined by a defendant tenant's diminution valuation.
Implications & Consequence
Devil's advocate approach
Although the Dilapidations Protocol seemingly places claimant repair attendance and associated cost evidence beyond the implications of Section18 diminution valuations as an assessment of loss, despite such an approach being potentially detrimental to the claimant landlord's position, it remains that some tenant defendants seek to rely on diminution valuation defences post completion of works by claimant landlords.
The present economic background, perhaps consequential necessity for businesses to protect cashflow, appears to be giving rise to a reliance on diminution valuation assessments, in spite of landlord claimant's evidence of loss via works attendance. Perhaps seeking to lay claim to the benefit of the provisions of Section 18 of the Landlord and Tenant Act 1927 during any litigation process that may later ensue, it can be implied by tenant defendants that the Dilapidations Protocol may not be successful at law in setting aside the provisions of the said statutory instrument, contrary to Civil Procedure Rules encapsulation of the Dilapidations Protocol.
As dilapidations matters seemingly become increasing tasking to resolve in a timely and amicable manner, with an adversarial and litigious approach perhaps increasingly common place, tenant defendants appear readily inclined to challenge due process and authoritative guidance in presenting their position. In consequence of this approach, court claims often need be submitted as tenants purport that the court will find in their favour, with only one means of coming to understand if that might be the case.
Node Building Consultancy represent landlord and tenant clients nationwide in a dilapidations capacity. From preparing schedules of dilapidations and carefully procuring works in lieu of such, to developing effective, targeted, claim mitigation strategies, we have invaluable specialist expertise and a proven track record of success in this field. Should you require assistance with your dilapidations matters, we would be delighted to hear from you.
Only if the landlord has not carried out all the works specified in the dilapidations schedule and does intend to carry out some or all of the works, then the landlord claimant should provide a formal diminution valuation.
