A warm welcome to Michael Watson, head of the Property Litigation team at Shulmans LLP solicitors in Leeds, who joins us on the blog to present an alternative viewpoint to last month’s guest post from Oliver Richbell of the Dispute Resolution Partnership.
Michael is a solicitor who has specialised in property related litigation and risk management for the majority of his legal career. He is a strong advocate of a proactive approach to the management of the risks associated with the ownership and occupation of property and this is very much reflected in his approach to dilapidations related issues whether acting for landlords or tenants. Michael has served on the Steering Group of the RICS Dilapidations Forum in the recent past and regularly presents continuing professional development training seminars for RICS members in the North of England.
Everywhere we turn nowadays we see views being expressed to the effect that parties to any dispute should engage in Alternative Dispute Resolution with mediation being one of the most common forms referred to.
Dilapidations is one such area where, driven by a specific pre-action protocol under the provisions of the court rules, parties often seem to be pushed towards mediation very early in their disputes. This may also be driven by a misconception that dilapidations claims are something to be negotiated between surveyors. Whilst negotiation may indeed play a part in resolving these types of disputes, it is important to remember just what is being dealt with in such a claim.
A “dilapidations” claim is of course a claim for damages which are properly recoverable at law as a consequence of alleged breach of contract. When a landlord (or their professional team) presents a dilapidations claim, they are making a specific representation that they are entitled to a certain sum of damages properly recoverable from the tenant at law. This is a representation that is made with the intention that the tenant should act in reliance upon it and therefore the landlord and their advisers are duty bound to make sure that the representations made are genuine and based upon sound and proper professional advice and judgment.
A representation that is not so made is potentially a fraudulent one, so if the landlord is not diligent in assessing the damages properly recoverable at law then they could be in difficulty.
Culturally though there is an expectation (encouraged by some professional guidance) that these complex claims for damages should just be “negotiated” as opposed to being forensically analysed. In some quarters the accepted practice is that the landlord makes a claim as large as they can, the tenant denies it and then they negotiate and settle somewhere in the middle. The tenant perceives a substantial saving and the landlord receives a payment of cash at the end of the lease.
Now of course if landlords and tenants make fully informed decisions and understand that they are engaged in a process of just haggling a sum to be donated to the landlord by the tenant then all well and good. If they are not though, then someone should be analysing what the damages actually are that the tenant is liable for – that is to say what sum is properly recoverable at law.
In fact both the landlord’s advisers and the tenant’s should be doing this because at the end of the day both should be assessing those damages properly – the landlord to make the claim at a level of no more than they are properly entitled to and the tenant to respond to any such claim.
This process should involve substantial due diligence in terms of looking at the contract documentation and evidence such as the age, nature and character of the property to determine the contractual standard of repair. If this part of the exercise is not undertaken properly then how can anyone say whether the standard of repair has been breached?
There then needs to be a detailed process of gathering evidence and expert witness opinion in order to properly formulate the damages claim. This process will involve specialists in building surveying, valuation and possibly quantity surveying.
Once the claim is presented then the tenant’s professional team need to undertake the same process to enable them to properly and forensically evaluate the claims being made by the landlord. At that point in time there may be a significant degree of agreement. After all there will be two teams of professionals looking at the same contract, the same building, in the same market and both assessing the damages recoverable as a consequence of breach of contract.
Armed with the evidence and that assessment then the parties may be in a position to engage in a productive process of mediation to explore where there are differences of opinion and to perhaps facilitate a settlement. A mediation too soon could run the risk that important decisions are made without the benefit of having properly considered the evidence and merits of the claim for damages. This is particularly important for tenants’ advisers who are of course the guardians of their client’s purse so to speak.
For either party, ADR is not always going to be the best way forward. Where a landlord has carefully and diligently formulated their claim for damages why should they not simply just press forward with court action to recover damages in the absence of satisfactory settlement proposals? If a party has put together the right professional team then why should they not just stand by that advice and seek the outcome they are entitled to rather than being forced to compromise?
Of course the answer to that is often that the costs of pursuing or defending a claim are prohibitive but ultimately even if a process of ADR is going to be undertaken, then the outcome is likely to be best if the case has been prepared thoroughly and diligently.
The key to success in any claim for damages is careful evidence gathering and diligent preparation. Then whether the dispute is resolved before the court or by some other means the best possible prospects for success are delivered. Key to this is pulling together the right team of professionals at the very beginning of the process and preparing the claim or response thoroughly and diligently.
As the maxim goes – if you want peace prepare for war.