Dilapidations negotiations are typically led by building surveyors, whether preparing claims for landlords or defending against them for tenants. Surveyors are experts in identifying necessary repairs, redecorations, and reinstatements and estimating the associated costs. However, an equally vital discipline in this process is often overlooked: the valuer, particularly in the context of the "Section 18/Diminution in Value" (DV) element.
A diminution valuation (DV) is crucial in limiting the damages a landlord can claim in a dilapidations dispute. Section 18 caps damages at the lower of the agreed cost of works or the reduction in the property’s open market value caused by the dilapidations. This valuation effectively caps all three elements of dilapidations: repairs, redecorations, and reinstatement of alterations.
The Dilapidations Protocol requires landlords to provide a DV if they do not intend to carry out most or all of the works claimed (Sections 9.3 and 9.4). This requirement protects tenants because the impact of dilapidations on a property’s value is often significantly less than the cost of the works themselves. Furthermore, landlords planning to repurpose or modernise the property after the settlement may find that the impact on value is further reduced.
Despite these protections, many tenants settle dilapidations claims without requiring their landlord to provide a DV. This oversight often leads to unnecessarily high settlements, as landlords frequently claim the full cost of works without considering the actual impact on the property’s value.
The Valuer’s Role: Beyond Diminution Valuation
The valuer’s, role extends beyond providing a DV. Acting as a second set of eyes, valuers often uncover flaws in the landlord’s claims, especially regarding reinstatement costs. Reinstatement claims, often the largest component of a dilapidations claim, are particularly prone to scrutiny. Determining whether a tenant is legally obligated to reinstate alterations is not always straightforward.
The starting point for assessing reinstatement claims is the definition of the demised premises in the lease. When a lease is renewed, the existing configuration of the premises - including alterations made during previous terms - often becomes part of the new demise. Unless the landlord’s solicitors explicitly include clauses in the lease requiring the tenant to reinstate alterations made during the current or prior lease, there may be no legal obligation to do so. Even when such clauses exist, the burden of proof lies with the landlord to demonstrate that the tenant made the alterations and that there is a contractual obligation to reinstate them.
Valuers can also identify elements of the property more likely to be part of the original demise rather than tenant improvements. For example, reinstatement costs for office alterations often constitute the bulk of a claim. However, if the landlord cannot provide clear evidence such as Licenses to Alter, the tenant is responsible for these alterations and the claim may not stand.
Significant Savings Through Expertise
By combining these insights with their expertise in assessing the DV impact, valuers help tenants achieve substantial savings compared to settlements based solely on a building surveyor’s cost of works. For landlords, a carefully prepared diminution valuation can support their claims. The valuer’s role is vital in ensuring a fair outcome in dilapidations negotiations. Whether acting for landlords or tenants, valuers bring a distinct perspective that complements the work of building surveyors. This ensures that settlements are based not just on the cost of works but also on their actual impact on property value.
For more information and expert advice on diminution valuations and dilapidations claims, please email paul@dilapsolutions.com.
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