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Please re-lease me

Dilapidations schedules are easy to get right, but will have serious repercussions if not taken seriously

I am amazed that architects and engineers often view preparing dilapidations schedules as simply a different format of a condition survey without the essential understanding of the process and its constraints. Landlords and their agents deserve better.

Failure to provide a realistic schedule and costs can seriously affect any settlement: at best, the costs will be too high and the credibility of the schedule will be ridiculed; too low and the financial loss to the landlord can be significant.

Why do we seem to struggle with the 'dilaps survey' when the process is one of the most well-defined that we undertake? The ramifications of getting it wrong can lead to an expensive mistake, whether it is from the landlord's or the tenant's perspective.

However, many see the dilap schedules as boring and an inconvenience.

Boring and inconvenient they often are, but that does not mean we should be blasé about their importance.

I believe the major involvement of the architect or engineer is in preparing the schedule itself to a fairly standard format so it can be incorporated within the final document. The general headings of reinstatement, repair and (to a lesser extent) redecoration, however, generally present a problem for most services engineers.

Common approaches include:

l'the equipment is old, so my best advice is to have it all replaced with new';

l'there are more efficient modern equivalents on the market now, so I recommend that you fireinstatefl with that';

l'the lease was granted with new plant and equipment so it should be surrendered with new also to achieve the same standard'.

The vast majority of leases treat services installations in the same cavalier way. All too often the resulting schedule includes remedial measures based on false assumptions, leading a landlord to have unrealistic expectations of the claim. The result is that the schedule leaves itself open to challenge from the tenant, a challenge that is successful on many occasions and has the added impact of damaging the credibility of the schedule as a whole. This will render major elements unenforceable, particularly if it finds its way to court.

On many occasions the survey - based on the urge to provide the best solution for the building - often misses the very precise nature of the dilapidations' obligation. Therefore, when faced with an older system, the architect or engineer often concludes that the best solution is to replace.

From an engineering point of view this may indeed be good advice and perhaps the longer-term solution may be precisely that, however this is rarely something that can be achieved through a dilapidations claim.

Normal wear and tear, statutory compliance, maintainability and operational state all must be included within the overall assessment of the system or item of equipment.When a defect does not exist within these categories then even if the equipment is 'old', it cannot be replaced under a dilapidations clause.

Having understood the general limitations that apply to dilapidations works, we can fail to realise that few leases are precisely the same. It is critical to have sight of the lease itself or at least those clauses that apply to the services installations (provided you can trust the client's agent to send you everything). Clearly Licences for Alterations and the main covenants on both parties are important and there may also be Schedules of Condition, which influence the extent of the terminal schedule, eg clauses imposing quite strict maintenance obligations on the tenant have been seen, which can be onerous.

In most cases the dilapidations schedule is not prepared with the view that the tenant will carry out the works but that there will be a financial settlement between the two parties. The assessment of costs is therefore very important to allow the landlord to realise his expectations in the settlement of the claim.

The serious failure of many dilapidations schedules is that a published pricing guide is used and often blindly applied. Such a guide will nearly always provide a 'new install' price for items. The vast majority of dilapidations items, however, fall into 'repair', 'relocate/reposition', 'isolate and make safe for removal by others' or just 'remove and make good' categories of works. Reliable pricing of such items is rarely found in pricing guides and can only be assessed through a combination of experience and actual quotations.

So, how do we go forward? The office boom of the 1980s and '90s is now seeing a huge number of leases reaching their conclusion needing a dilapidations survey. It is necessary to improve the knowledge and understanding of the process and apply the principle of 'exact science', which it demands. We must encourage surveyors to educate us in the correct methodology and be more disciplined in understanding the objectives of the study that we have been asked to carry out and rigidly sticking to those objectives.

Graham Clarke is a director at FHP ESS. Email g. clarke@fhpess. com

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