Schedule of dilapidations, Scott Schedule and the RICS Dilapidations Protocol
Dilapidations are the obligations of a commercial tenant to maintain, repair, and decorate the premises in accordance with the lease covenants, and to remedy breaches at the end of the lease. The landlord's primary remedy is the terminal dilapidations claim — a schedule prepared by a RICS-chartered building surveyor:
- Schedule of dilapidations: prepared by the landlord's RICS-chartered building surveyor; lists: each item of alleged disrepair or breach of the decorating/yielding up covenant; the works required to remedy each item; the estimated cost of each item; and the total claimed. A terminal schedule is served at or after lease expiry. An interim schedule is served during the term — used where the tenant is causing active and serious damage
- Scott Schedule: the tenant's RICS-chartered building surveyor responds to the terminal dilapidations schedule item by item: (i) agreed in full; (ii) disputed in full (with reasons); (iii) partial agreement (lower agreed cost). The Scott Schedule is the key negotiation document and the pleading document in court proceedings
- RICS Dilapidations Protocol (England and Wales): the landlord should serve the terminal schedule within 56 days of lease expiry; the tenant has 56 days to respond with a Scott Schedule; the parties should then negotiate in good faith (surveyors' meeting recommended); mediation should be attempted before litigation. Non-compliance with the Protocol may result in adverse costs orders in litigation
- Pre-action obligations: parties should exchange Diminution Valuation evidence (s.18(1) valuation) before proceedings are issued — RICS recommends that the Diminution Valuation be obtained early to avoid the cost of litigating to the s.18(1) cap stage
Section 18(1) LTA 1927 diminution cap, supersession and Jervis v Harris clauses
- Section 18(1) LTA 1927 (England and Wales): the landlord's damages for breach of a tenant's repairing covenant are capped at the diminution in the value of the landlord's reversion — the reduction in the market value of the landlord's interest in the property caused by the tenant's failure to comply with the repairing obligation
- Diminution valuation: the landlord commissions a Diminution Valuation (RICS chartered valuation surveyor) comparing: (a) the market value of the landlord's interest with the property in the condition required by the lease at expiry; against (b) the market value of the landlord's interest in the actual condition at expiry; the landlord can only recover the lesser of the cost of works or the diminution in reversion value
- Supersession: where the landlord intends to demolish, pull down, or carry out structural alterations to the premises at or shortly after the end of the tenancy that would render the repairs valueless, the s.18(1) proviso extinguishes the dilapidations damages claim entirely — even if the tenant has caused significant disrepair; the landlord must establish the genuine intention to carry out the works (planning permission; building contract; financing)
- Jervis v Harris [1996] Ch 195 (Court of Appeal): a lease clause allowing the landlord to enter the property (after giving notice and the tenant failing to repair), carry out the works, and recover the cost as a contractual debt — NOT as damages; the s.18(1) diminution cap applies only to claims for damages; it does NOT apply to debt recovery under a Jervis v Harris clause; requirements: (a) clearly worded clause; (b) notice served on the tenant specifying the repair required; (c) reasonable time given to comply; (d) landlord carries out the works and issues an invoice as a contractual debt
- Scotland: there is no statutory equivalent of s.18(1) LTA 1927 in Scotland; Scottish courts apply common law principles limiting the landlord's recovery to actual loss suffered — in practice a similar diminution in value principle operates; Scottish commercial leases may include Jervis v Harris equivalent provisions; the RICS Dilapidations Protocol applies in England and Wales only — Scottish dilapidations follow the process in the lease and Scottish civil procedure