Dilapidations: mind games for surveyors

Dilapidations surveyors are required to take into account their client’s intentions. Why? Where intention is relevant If the reader is sitting comfortably, let me suggest a spot of mental gymnastics in the sphere of terminal dilapidations. The question to bear in mind during this exercise is: to what extent is the landlord’s actual intention relevant in computing its damages? Let me pick off the most obvious target first. The second limb of section 18(1) of the Landlord and Tenant Act 1927 provides that, where it can be shown that a decision had been taken by the end of the lease to demolish the premises or carry out such alterations as would render the repairs nugatory, then no damages are recoverable. Ignoring compulsorily-purchasing authorities, the only relevant decision-taker will be the actual landlord. So, under this provision, the landlord’s actual intention is, of course, directly relevant. In practice, cases concerning the second limb are rare, either because it is usually quite obvious that the landlord has taken the requisite decision, or because the landlord will have contrived to conceal all evidence of its decision until the contractual term date is safely past. Where intention is irrelevant What then of cases where the second limb does not apply? Such cases will include (a) breaches of repairing covenant where the landlord has simply not made up its mind as to whether to carry out works that might otherwise fall within the second limb; (b) ditto, but where the works are not substantial enough to qualify for second limb treatment; and (c) other breaches as to condition (failure to redecorate or reinstate, for example) that may not fall within the 1927 Act at all, and to which it is said that “the common law rules apply” (as if that makes life any easier). In such cases, the test for recovery of damages is plainly an objective one, in contrast to the second limb test, which turns largely upon what the actual landlord has decided to do. In a typical dilapidations case, the court is in theory not concerned with what the actual landlord intends to do, for two reasons. First, because that is strictly speaking inadmissible, since the landlord’s actions, necessarily occurring after the valuation date, cannot affect the valuation. Secondly, because the landlord’s actions may be quite unrepresentative of the market – and the first limb of section 18(1), with its ceiling on damages consisting of the diminution in the value of the reversion attributable to the breaches, is a market-based test. The same principle applies to the non-disrepair cases. For example, the question is not whether the actual landlord intends to reinstate in default of the tenant so doing, but rather whether it is reasonable for damages to be computed on the basis of the cost of reinstatement, which in turn requires an objective investigation into the facts. Why even irrelevant intention matters Does all this mean, then, that the actual landlord’s intentions for the property can safely be ignored? That is clearly not what lies behind the drafting of the newly adopted Dilapidations Pre-action Protocol. This stipulates that a landlord’s schedule of dilapidations should be endorsed with an opinion that (a) all the works set are reasonably required to remedy the breaches specified; and (b) full account has been taken of the landlord’s intentions for the property. How is this consistent with the analysis set out above? It is common sense that what the landlord actually does is not something any court is likely to ignore. Thus, in a case where a landlord is claiming damages for dilapidations, maintains strenuously that it intends to do the work, but has not lifted a finger to do any work by the time of the trial, two years after the contractual term date, it is likely to have a serious credibility problem. As Neuberger J said in Craven (Builders) Ltd v Secretary of State for Health [2000] 1 EGLR 128: “In a case where the landlord has not carried out the works, and there is no evidence that he intends to carry them out, then the cost of the works is of no assistance.” Conversely, if the landlord has actually done all the allegedly requisite remedial work by the time of the trial, the tenant will have the credibility problem if it is to cling to its argument that no reasonable landlord would have done the work. But the protocol speaks of intention rather than action. Consistently with this, in Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344, Lord Lloyd said, in the context of a claim for damages against a contractor for failure to build a swimming pool to the specified depth: “The courts are not normally concerned with what a plaintiff does with its damages. But it does not follow that intention is not relevant to reasonableness, at least in those cases where the plaintiff does not intend to reinstate.” This does not mean, however, that a simple expression of intention by the landlord will be probative. A distinction is to be made between (a) cases where the claimant has said or implied that it does not intend to do the works, where the intention is obviously relevant to the question of damages; and (b) cases where the claimant has said that it does intend to do the works – but has not done them by the trial. In the latter case, the intention will carry less weight, or even no weight at all, depending upon the landlord’s performance in court. Accordingly, the requirement in the protocol to indicate that “full account has been taken of the landlord’s intentions for the property” should be seen for what it is: a statement on a piece of paper that may be worth less than the paper it is written on. Guy Fetherstonhaugh QC HonRICS is a barrister at Falcon Chambers