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Recent Articles from the Business Times
DILAPIDATIONS (part 1) – as featured in The Business Times April 2010Dilapidations – a word to bring fear to the heart of any tenant. Nevertheless, with a little foresight, the impact can be reduced from a full scale heart attack to an acceptable murmur.
I will relate the tales from three examples I have been working on this year. This article covers two cases and next month I will discuss the third.
In the first example the tenant held 35,000sq.ft. of industrial space on a lease with some years to run. The tenant had a break option which it decided to exercise due to the economic downturn.
The lease break option was dependent upon the tenant having materially performed and observed the tenant’s covenants. That meant, in addition to paying the rent and other bills, the premises had to be in good repair. Anything but trivial failures to meet the conditions could have rendered the operation of the break invalid. Unfortunately for the tenant (which had inherited the onerous lease from a company it took over) the landlord served a Schedule of Dilapidations costed in excess of £100,000.
Material compliance is an objective test and is based on what impact any outstanding works (or non-compliance) might have on the landlord’s ability to re-let or sell the property subsequent to the break.
The landlord basically had the tenant over a barrel. If the tenant failed to comply with its repairing obligations the break option would be ineffective and the tenant would have to continue paying a historically high rent, circa £200,000 a year, plus rates and other outgoings for premises it no longer occupied. To add insult to injury, in the event the break notice failed, the dilapidations claim would not have gone away, merely be deferred until the end of the contractual term.
With no viable alternatives, the tenant had to do the works.
The second case also involved a tenant exercising a break option. However the tenant company had been properly advised at commencement (by Blacklee Smith as it happens!) and its repairing obligations were limited by a Schedule of Condition attached to the lease.
The lease covered a range of industrial buildings totalling 45,000sq.ft. They varied in nature from modern purpose built industrial units to elderly modular buildings.
The landlords engaged a national firm of building surveyors to prepare a Schedule of Dilapidations. Again the costed claim amounted to a considerable sum of money.
I was able to successfully defend the claim for dilapidations by referring to the Schedule of Condition and accompanying photographs.
The landlord’s surveyors argued that the premises had deteriorated further in the interim, for instance cut edge corrosion to roof sheeting had allegedly worsened over the intervening years.
Fortunately the landlord was persuaded it did not have a pursuable case. The tenant was found to have met its lease obligations and the break option was effective. The tenant’s foresight in safeguarding its obligation against dilapidations with a Schedule of Condition saved the day.
Next month I will discuss another case where the tenant came out on top.
DILAPIDATIONS (part 2) – as featured in The Business Times May 2010
Last month I described my experiences with two recent dilapidations claims; one where the tenant had to undertake works in order to exercise a lease break option, the second where a Schedule of Condition attached to the lease enabled the tenant to avoid doing any works at all.
The third case was something of a classic. The tenant company had come to the end of a fully repairing and insuring lease on a 60,000sq.ft. second world war aircraft hangar.
The lease contained a Schedule of Condition I had prepared at commencement some years previously.
The landlords engaged the services of a national firm of surveyors who prepared a most alarming Terminal Schedule of Dilapidations. Understandably the tenants were panic-struck at the thought of having to put right many years of neglect, mostly predating their occupancy, in an extremely large and obsolete building.
My protestations to the landlords’ surveyors that the works demanded were excessive and largely irrelevant initially fell on deaf ears. Whilst they conceded the tenant’s liabilities were limited by the Schedule of Condition, they claimed extensive works were nevertheless still required under the terms of the full repairing lease.
When I re-inspected the site, which incidentally is located a long way from Northamptonshire, I noticed the landlords had recently demolished a similar hanger building nearby. Also, a number of the modern industrial buildings on the airfield were vacant with To Let boards displayed.
I made enquiries of the Local Planning Authority. It transpired the owners of the airfield had obtained planning permission within the last year for demolishing the hangars and replacing them with new industrial buildings.
I pointed out to the landlords’ surveyor he had perhaps been economical with the truth in signing his endorsement. He had stated in his Schedule of Dilapidations that, in his opinion, all of the works set out in the Schedule were reasonably required in order to put the premises into the physical state required by the lease. He should have disclosed to me his clients’ intention to demolish.
I was able to refute the Schedule of Dilapidations in its entirety for the following reasons:
· It was clear from the planning permission granted that the landlords intended to demolish the building, therefore rendering any works of repair valueless under Section 18.1 of the Landlord & Tenant Act 1927.
· Secondly I argued that there was no diminution in value of the freehold diversion. The landlords had recently demolished an identical unit in the vicinity which was good evidence that it was not considered economical to retain and re-let that hanger as demand generally in the locality was low. Also, fully repairing an aged and outdated former aircraft hanger unsuited to the demands of the modern market to the standard required by the lease, may have had little or no impact on the value of the building. The sort of tenant willing to occupy an outdated hanger was probably not going to be at all concerned about its state of repair.
The landlords’ claim fizzled out and the tenant again reaped the benefit of taking professional advice from the outset.
The facts as detailed above were correct to the writer\'s knowledge at the time of going topress
New RICS Home Buyer Service – as featured in The Business Times April 2010
RICS have introduced a new version of their “level 2” survey.
The RICS Home Buyer Report was first published in 1993, revised in 1997 and re-published in 2005 to account for Scottish changes. Scotland now have their own ‘single survey’, a mandatory condition report carried out by Chartered Surveyors.
The latest Home Buyer Report is loosely based on the ‘single survey’.
The principle change from the generally well-liked previous service is the introduction of condition ratings. These brighten up the report with a use of colour and continue through with the best features taken from the recently defunct HIPS scheme.
The reports are written in plain English and give invaluable pre-purchase advice on a property’s condition, its value and maintenance requirements.
The use of RICS Survey Writer software and standard phrases ensure the reports will be of uniform appearance wherever in the country a property is located. The completed reports are available online for speed of delivery.
The price of the reports is generally £400 – £500 plus VAT dependent upon the size and age of the property.
Chartered Surveyors carrying out the inspection are governed by RICS Practice Statements.
The Home Buyer Report is designed as a cost-effective product. It is structured to provide an objective descriptive section covering each element of a home. In addition there is an advisory section which is the ‘added value’ part providing the customer with advice on how to resolve the defects in broad terms.
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