Why do engineers struggle with dilapidations?
This briefing was prepared exclusively by Graham Clarke, a director at FHP ESS, and is his commentary on dilapidations.
"I am amazed that engineers often view preparing dilapidations schedules as simply a different format of a condition survey without the essential understanding of the process and its strict constraints. Landlords and their Agents demand better from the services engineering profession and currently it would appear that most of us fail to meet those demands and provide the level of service required.
Failure to provide a realistic schedule and costs can seriously affect any settlement, and 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 does our industry seem to struggle so badly with the "Dilap’s Survey" when the process is one of the most well defined that we undertake? The ramifications of getting it wrong can lead to a very expensive mistake, whether it is from the landlord or the tenant perspective."
I believe that the major involvement of the services engineer is in preparing the schedule itself to a fairly standard format so that it can be incorporated within the final document.
The general headings of Reinstatement, Repair and (to a lesser extent for services) Redecoration however, generally present a problem for most services engineers. The sort of misconceptions which I commonly encounter include the following:
- "The equipment is old, so my best advice is to have it all replaced with new"
"There are more efficient modern equivalents on the market now so I recommend that you 'reinstate' with that"
"The lease was granted with new plant and equipment so it should be surrendered with new also to achieve the same standard"
In my experience, the vast majority of leases treat services installations in very much the same way, which certainly does not allow the above statements to be relevant to a dilapidations process.
However time and again I have seen the above used to generate dilapidations schedules which are at best incorrect. I find that 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 which 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 of the schedule unenforceable, particularly if it finds its way to court.
I have found on many occasions that the engineer’s view, 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 engineer often concludes that the best solution is to replace it. 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 which 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 can not be replaced under a dilapidations clause.
Having understood the general limitations which normally apply to dilapidations works, engineers very often fail to realise that few leases are precisely the same. I maintain that it is critical to have sight of the lease itself or at the very least those clauses which apply to the services installations. 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, e.g. 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.
I have found that a serious failure noted in 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 of operating and maintaining such buildings and actual quotations for work.
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 and there is an increasing need for the dilapidations survey. It is necessary for the engineering profession to improve its knowledge and understanding of the dilapidations process and apply the principle of "exact science" which the process demands. The greatest knowledge base for the process lies with the building surveying industry and as engineers, we must encourage the surveyors to educate us in the correct methodology. We must also be more disciplined in understanding the objectives of the study which we have been asked to carry out and then rigidly applying those objectives".
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