Schedule of Dilapidation Survey | Commercial Building Surveyors

What is a Schedule of Dilapidation?

A Schedule of Dilapidation is a formalised report which describes a buildings condition in a table format. The level of description is very precise and necessarily very brief to fit it into the table format. And, usually, it must refer to the terms of the lease which might require certain repairs to be addressed. The Schedule is really one part of a legal process to manage the repairs strategy and relationship between Landlord and Tenant. And there is a raft of legislation, case law and protocol to determine the conduct of dilapidations.

Why is a schedule of dilapidations required?

The most common reason for a schedule of dilapidation to be repaired is to enable a Landlord (or sometimes a tenant/senior lease holder who has a sub-tenant) to establish the condition of the property, verify that it is being maintained in accordance with the terms of the lease, and to provide a mechanism to identify repairs which are required and formally notify them to the party responsible for undertaking them.

Less commonly a schedule of dilapidation might be as part of a stock condition review or in relation to estate management but there are usually better forms of addressing repairs management (PPM or Planned Preventative Maintenance Programmes for example – which use a similar, but different, scheduling of information).

A Schedule of Dilapidation might take one of two forms: a Terminal Schedule of Dilapidation or an Interim Schedule.

Terminal Schedule of Dilapidations

Interim Schedule of Dilapidations

Schedule of Dilapidations - Useful Info

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The Terminal Schedule of Dilapidation – at lease end

The Terminal Schedule of Dilipidation is prepared close to the end of the lease or sometimes after the lease has expired and the Landlord has obtained possession of the premises. This schedule identifies the elements of disrepair in the building, relates them to the leasehold repairing and decorating obligations and then usually determines a cost for undertaking the repairs and reinstating the building to a suitable condition in which it might be let.

It does assume that the Landlord intends to re-let ‘as is’ and the Schedule of Dilapidation must be prepared in accordance with the Civil Litigation Protocol which sets out requirements for surveyors and lawyers when dealing with a dilapidation claim – any claim which might proceed to court – though in reality all claims are prepared is if they might end up in the courts as failure to do so potentially exposes a Landlord to an invalid service of the appropriate notices and a void claim – with either abortive fees for a re-service of the schedule or a failed claim.

Consequently a terminal schedule of dilapidations needs careful consideration in the run up to lease expiry and coordinated activity between the surveyor inspecting the property and the clients legal team in order to protect the clients position at each stage of the process.

At lease expiry a terminal schedule of dilapidations may be only part of the process – tenants often argue ‘supersession’ – putting a case that the building is no longer commercially viable in its current form and that some or all of the alleged disrepair is now irrelevant or ‘superseded’ by the commercial market. A current example of this process is the conversion of many former office buildings to blocks of flats using the revised Permitted Development rules under the General Development Order. The main building envelope might be liable to the lease repair terms but frequently all of the M+E services and the internal fitting out is redundant, will be stripped from the building as part of the change to residential use and will not therefore be part of a claim for damages – even where the tenant has obviously failed to observe the repairing obligations in the lease – which is of course still a contract.

Often a valuer will be employed at this stage to help determine a ‘Section 18’ valuation to assess the diminution in value of the building and which is particularly relevant to supersession claims but may also be applicable to any dilapidation claim.

Clients need to appreciate the potential total fee roll up and time required – a commercial building surveyor will normally prepare the schedule of dilapidations following the condition inspection, a valuer – a very different species of surveyor will undertake the diminution valuation (and any valuer undertaking this work needs to be experienced in Section 18 and expert evidence Court work) plus the legal team fees.

Usually any reasonable Landlord’s fees are indemnified by the lease – but not always – so in most cases the fees can be recovered from the tenant or sub-lessee. Careful case management is always required to demonstrate ‘reasonable’ conduct at all stages. Failure to do so may create a fee burden to the Landlord and courts will take a dim view of unnecessarily aggressive or unreasonable behaviour, especially when it comes to awarding costs.

Careful reading of the lease is also required to examine and consider exactly what repair liability is imposed on the tenant. Subtle differences in wording may have a significant impact on what the tenant is obliged to do and when, and cost recovery by the landlord.

A terminal schedule of dilapidation will normally be accompanied by various supporting documents, including copies of the relevant leases and licence to alter, test certificates if services have been tested and found wanting and so on. The terminal schedule of dilapidation is usually priced to indicate the measure of loss anticipated to repair the property and a Sec. 18 valuation will often be prepared (but not initially served by the lawyers on the tenant) to support this or modify the Landlords position if appropriate. A high degree of commercial property surveyor and lawyer liaison is required to ensure effective service of a legal notice on the tenant.

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Interim Schedules of Dilapidation and ‘Notice to repair’

Turning to the interim schedule of dilapidation – as the name suggests this is prepared during the mid-term of a lease and well before expiry.

Typically this has a number of possible functions; a concerned but friendly Landlord may wish to ensure that a tenant is given plenty of notice about the condition of the building and reminded in timely fashion of their obligations to maintain.

In leasehold commercial properties most properly drawn leases will contain a repairs obligation placed upon the tenant and in more extreme circumstances the interim schedule of dilapidation may be the pre-cursor to Landlords re-entry of the building to undertake repair works and charge them back to the Tenant (the case of Jervis v Harris sets an important legal precedent here). The Landlord may be entitled to undertake the repairs but without forfeiture of the lease – the tenancy continues and costs for repair intervention are recovered by the Landlord.

Finally the schedule of dilapidation may be served where there is a blatant failure by the tenant to observe lease obligations and the Landlord wishes to obtain forfeiture of the lease and possession of the property to re-let or develop the building.

In these cases knowledge of Section 146 of the Law of Property Act 1925 and subsequent case law interpreting possession are critical to managing the process and again knowledgeable surveying and legal teams are key to managing the process with expedition and at the least cost.

Schedule of Dilapidation – Other Useful Information

Schedule of Dilapidation – Break Clauses

Many of the more modern leases – perhaps especially for the larger corporate properties – incorporate break clauses enabling a lease to be terminated at certain stages of the term. The successful operation of the break clause can fall to very fine interpretation of a variety of lease clauses including, but by no means restricted to, the repairs and alterations clauses in the lease. Landlords and Tenants should obtain very carefully considered advice before (and during) triggering of break options. The cost of a failure to execute a break option on an annual rent roll of £500k for a lease term of ten years remaining would make the surveying and legal fees look trivial !

Schedule of Dilapidation – Building Services and ‘other’ Points to Note

We have talked above about the involvement of commercial building surveyors and valuers. Many modern commercial buildings have a significant M+E (mechanical and electrical) element – building power supplies, heating, air conditioning, cooling, IT systems and IT cooling, lifts, telephone and coms systems, cctv and security management, underground drainage or other services (which risk being out of sight and out of mind). Many of these technologies evolve rapidly and todays state of the art installation is tomorrows piece of recycling. An installation which was new and considered essential to let the commercial building at lease commencement may now be redundant. Is the tenant liable to install a new and up to date system? Or are they liable only to repair an outdated piece of kit and return it in working order even though nobody actually wants it? Has it been superseded?

Frequently building services form a major part of any dilapidation claim – and whilst clients understandably are nervous about employing another professional when compiling a schedule the Building Services engineer can have a crucial role in assembling a comprehensive picture of the buildings condition, cost of repair or reinstatement.

Other elements such as asbestos need considering. Has it been removed? And has it all been removed and properly? Are there any other nasties? Lead plumbing? What about the Control of Lead at Work Act? Is the tenant not just down to repair but also to observe regulations? Should they have removed other deleterious building elements if in breach of statute or regulation? The scope of an inspection (and the cost impacts of missing something) can broaden rapidly.

As with all these things a degree of proportionality is required and the key to successfully managing a Dilapidation claim is usually early dialogue with a knowledgeable commercial building surveyor familiar with the type of building – who can advise on the appropriate measures to put in hand when preparing a dilapidation claim – perhaps part of an incremental approach to assessing condition and governed by the clients objectives.

Chartered Commercial Building Surveyors will also have to proceed having regard to both the RICS Guidance Notes (usually for preparing dilapidation claims, often also as an expert witness, as claims are prepared anticipating court attendance even though few ever actually ‘go the distance’) and the Civil Litigation Protocol.