We Think That Dilapidations and

Poker Playing Have a Lot in Common

If you would like further advice on schedules of dilapidations or need a schedules of Condition, or if you have had a dilaps claim made against you or any other matters relating to leasehold properties please do not hesitate to contact us on 0800 298 5424 for a friendly chat.  

Dilapidations the rules

Like poker playing dilapidations has a set of rules and protocol:

•  Law of Property Act 1925

•  Landlord and Tenant Act 1927

•  Leasehold Property (Repairs) Act 1938 as amended by the Landlord and Tenant Act 1954

There is guidance from the RICS (Royal Institution of Chartered Surveyors) guidance notes, which have now been around for many years and there is also The Property Litigations Associations Pre-Action Protocol, which was introduced in Spring 2002.

The amateur and the professional dilapidations poker player

It is very interesting how the same game can be played very differently depending upon your experience and knowledge of the rules. This is true for both dilapidations and poker playing. In this case the amateur dilapidations poker player will be the landlord or the leaseholder who feels they understand enough about the building and maintenance to play the dilapidations game. Where two amateurs are involved this can work out well as long as it remains two amateurs. We do tend to find where one is losing they call on specialist advice from a chartered surveyor or a solicitor and often the once friendly discussion can turn to a heated battle.

Dilapidations, the unfair game

Where the amateur decides to take on a professional it can almost be an unfair game, as the professional knows the rules of the game and has learnt from experience how to play the game. Together with this they have a technical and specialist knowledge. The only thing that sometimes throws the professional chartered surveyor dealing with a dilapidations claim against an amateur is that the amateur is not aware of the rules of the game (the RICS Guidance Notes) or the protocol (the Civil Procedures Protocol) and therefore can make some horrendous mistakes, almost to the point that the chartered surveyor wishes to help and give guidance to the amateur, although of course it wouldn't be professional for him to do so.

Why do most landlords use specialist chartered surveyors to deal with dilapidations?

 Most landlords have more than one property; they have many properties, and as such they possibly tried dealing with the dilapidations claim themselves (the amateur version of the game) and understand the problems that can come about from this tomfoolery. They have no doubt equally seen the results that they can get from a professional chartered surveyor dealing with a dilapidations claim against an amateur. They know it is truly an unfair game and they also know that to stand any chance winning against a tenant who has employed a specialist chartered surveyor they have to have the specialist themselves.

The voice of experience

We recommend that if you are proposing to take on a dilapidations claim and deal with it yourself you would read the above article and listen to the voice of experience. At the very least you should speak to some surveyors about their experiences of dilapidations and landlords and tenants too, so that you get an unbiased view as to how they would proceed with a dilapidations claim, but we would say 99 times out of 100 the experienced person that's dealt with dilapidations would recommend that you buy in a specialist. It could be the best money you've ever spent, of course we would say this being specialist chartered surveyors (and independent too).

In a good market

A landlord in a strong market will want to re-rent the property. He will know that he will be able to re-rent it quickly and he will know he will be able to rent it at a higher rental level. He is therefore in a win win situation. However, usually he will want to win a bit more and make a dilapidations claim and have his property brought up to as new condition or a sum of money agreement instead. When the market is good for the landlord it is very good.

In a poor market

A landlord may well be aware that if the tenants leave no-one else will rent the property, or at the very least it will take six to twelve months before he rents the property out. This depends of course upon what type of property it is, whether it is retail, industrial, etc, as each tends to have their normal time for renting out in a normal market in that particular area.

The six to twelve months will be without a rental income (and substitute in whatever areas you wish), possibly paying off loans on the property and possibly paying rates. So, the last thing he wants is an empty property and he will want the property in the best possible condition for him to re-let it. This is both structurally and on a superficial basis. The landlord will know structurally he will need to have the property in good condition to be a good long term investment and superficially he will know it will have to be in good decorative order, as this has to a prospective tenant what's known as kerbside appeal in the housing industry. This is where the initial few seconds are the time when the decision to buy the house and we have found it is similar in the case of lease properties. The decision is really made within the first few seconds on the general appearance, assuming everything else is equal.

If the leasing market has been poor for a long time the landlord may well have taken the existing tenant on a low rent, one that is, what is known as, a break even rent (that's break even for the landlord), which means that he may be looking for the dilapidations claim to be the profit in the deal that he did originally (not often said but very true). This is not so much the icing on the cake but in a poor market it's the cake itself, though dilapidations will be fought ferociously. Also, ironically, when times are not so good and the landlord is keenest to make a big dilapidations claim times are also usually not so good for a tenant, who will try and save money by not appointing his own specialist surveyor. This of course helps the landlord and then it becomes an unfair game.

Average market

If there is such a beast at the moment, as the market seems to be forever either rising in a bull market or going down in a bear market. In an average market it is the strategy that the landlord has that comes into play.

In summary, he then steps back and looks at the portfolio of properties that he owns overall and where he is going.

Landlord's strategic decision

The second thing that a tenant would benefit from after having a specialist surveyor dealing with their dilapidations claim is the knowledge of the landlord's strategy, as this has a massive influence of how they play the dilapidations poker game. An example is possibly the best way of explaining this.

Dilapidations strategy where the landlord is looking to redevelop

If the landlord has an industrial estate of 20 odd units built in the 1960's with asbestos roofs, with a relatively poor access for deliveries, and a low floor to ceiling height for the entrance with poor clear spaces due to columns, which make the units difficult to rent, it will no doubt have crossed his mind, what else can he do with that particular site? He may be looking to redevelop it as a modern industrial estate or develop it as a housing site, but either way he will be looking to move the tenants out and finance his proposals. Therefore the last thing he will want when he serves a dilapidations claim on the tenant is for the repair work to be carried out, because he will be looking to demolish the units in the not too distant future. He will, however, need cash and cash flow to enable him to fund the planning costs and be a substitute rental income. This, in its very broadest sense, is known as super-session and it the tenant's specialist chartered surveyor is aware of it it can be a very good argument for not carrying out dilapidations. However, the landlord, of course, will not be showing his hand, which brings us back to poker playing!

In this case you can see how a landlord would be looking for a good cash settlement to be by far the best option.

Dilapidations strategy disposing of the estate

If the landlord has an estate of public houses and he is also a producer of beer following the Mergers and Monopolies Commission Report the number of public houses that he could have was limited. He therefore may take the strategic decision to move out of the public house business and into something else, such as high street retail or the leisure industry (the physical activity side of it).

Therefore the strategy when it comes to termination of leases may be to present a hefty dilapidations notice, which entices the tenant to keep the lease and therefore not to have a hefty dilapidations claim against them, which they cannot afford, and perhaps the tenant will decide to carry out the repairs himself, but over a longer period of time than the dilapidations notice allows (which is to the end of the lease). This strategy by the landlord would ensure the maximum number of the public houses are leased with a rental income (it may mean they are in poor condition though) but 9 times out of 10 any purchaser will be looking at the rental income as opposed to costs. In our experience they may do a random sample survey but when you are buying in excess of 50 odd public houses, or 50 off leasehold businesses you will do little more than a random sample.

Strategy would then enable the landlord to sell on the properties, which looks like there is a good rental income from it (and there is), but there is a larger than normal repairing liability that the tenants have that most are in the position that they can't fulfil. Ultimately they will bounce back on the landlord, though in this instance you can see how the landlord's strategy for a dilapidations claim enables him to sell on and you can see how the landlord investor purchasing should take proper advice to ensure that he is buying what he believes he is buying, because often in property things are not what they seem.

Dilapidations it is all about attitude and most of all knowledge and experience

As with poker attitudes can get you a long way with dilapidations as long as you know the rules of the game. Assuming that both the landlord and the tenant have appointed specialist chartered surveyors the game begins on a relatively level playing field and we have found it's attitude that then wins the poker game. By attitude we mean appropriate attitude for the end result that you wish to get.

Dilapidations things that are never said

If the landlord, for example, is looking for a cash settlement from the dilapidations then a very detailed schedule of dilapidations may be the way to do this. Although it goes against the Royal Institution of Chartered Surveyors Guidance Notes and the Civil Procedures Rules Protocol which both strongly promote fair dilapidations, historically dilapidations have, however, been weighted by the landlord as what we would term a negotiation document.

Dilapidations have got fairer for the tenant  

The landlord has gone in “heavy” to allow for negotiation by the tenant and still have items or a financial settlement that means they are the winner! The landlord's surveyor often works on a boredom factor by the tenant or the tenant's surveyor in that he won't literally go through every single item that's been put in the dilapidations schedule. Or equally he won't read the lease and understand the rules of that particular game (as the games do change depending upon what's in the lease).

The tenant's final defence section 18 valuation?

The Section 18 part of the Landlord and Tenant Act 1927 (amended). This means that a dilapidations claim can't exceed the difference between the value of the property as is and as would be if in full repair, as set out within the lease. For further information relating to this please see our specific article on Section 18 valuations.

Dilapidations protocol basic rules of dilapidations poker

Since first publication in 2002 dilapidations protocol by the RICS (Royal Institution of Chartered Surveyors) has set out the rules for the game, albeit that these are guidelines only. More recently the Civil Procedures Rules (known as the CPR) reinforced the essence of the dilapidations protocol, although not specifically written for dilapidations they do add a level of fairness to the landlords and tenants in the dilapidations game. This is why we believe it's become much more of a poker game. By that we mean you both know the rules, it's how you play your cards that are very important and there is a thin white line beyond which you can't step whilst following the RICS guidance and the civil procedures protocol.

Overstated and exaggerated dilapidations claims

One of the main elements is that surveyors that overstate and the claim of the landlord, or vice versa the tenant, if the case gets to court this is recognised by their client in additional costs, even if the award is ultimately made to their client. This could mean that although the dilapidations claim is “won” the Judge feels that a settlement could have been made without court proceedings had the landlord's/tenant's surveyor been more reasonable, the costs in incurring the court case etc, can be awarded against the surveyor and his client.

We have produced a number of articles and book reviews on dilapidations, for more information go to:

Information on Dilapidations

If you need help and advice with regard to dilapidations claims, negotiations, disputes, section 18 valuations or schedules of condition or any other matters please call 0800 298 5424.

Please note we are independent chartered surveyors.

We hope you found the article of use and if you have any experiences that you feel should be added to this article that would benefit others, or you feel that some of the information that we have put is wrong then please do not hesitate to contact us (we are only human).

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