"......a cynic is a man who knows the price of everything, but the value of nothing"

Radius Consulting is a firm of chartered surveyors specialising in providing astute valuation advice in respect of retail, industrial, office and leisure properties throughout the entirety of the United Kingdom and Ireland, with a particular emphasis on ‘diminution valuations’ in the context of dilapidations claims.

Diminution valuations apply because specific statute operating in England & Wales, Ireland and Isle of Man - along with common law in other jurisdictions - places a cap on the amount of damages a landlord of commercial premises is entitled to receive for the outgoing tenant’s breaches of covenants to repair, decorate and reinstate alterations. In effect, this limits the entitlement for damages to the lower of the Cost of the Remedial Works, OR the impact the disrepair has on the otherwise full freehold value of the property.

Whilst on the face of it, this may appear to be structured in favour of outgoing tenants, there are many situations in which a landlord may also require a ‘diminution valuation’. The respective situations are more particularly explained in the SERVICES  tab above.

Welcome to Radius Consulting.

Section 18 valuations (ENGLAND & WALES ONLY) place a ceiling, or cap, on the amount of costed repairs (dilapidations) that a landlord can claim against a tenant. (dilapidations cap valuations)

Every landlord or tenant will be concerned with dilapidations matters at some point during, and invariably at the end of, a lease.

A landlord may require such in order to comply with the "Dilapidations Protocol", this to be served upon the tenant with the costed repairs schedule.

A tenant may require one to establish whether or not this statutory cap, or ceiling, might serve to reduce their dilapidations payment to the landlord.

Often this reduction is significant.

In SCOTLAND, as noted at paragraph 11.4.2 ("Alternative measure of loss") of the RICS Guidance Note: Dilapidations in Scotland (2nd Edition):-
In Scotland a claim for damages relating to a dilapidations dispute is not capped by statute. This differs from the position in England/Wales.

For example, offices located within a much larger development where much of that larger development is vacant and desolate may be a case in point. Regardless of whether the offices within the development are in good condition or not, there may be no market and therefore little value attached to the premises. In such a case, the true measure of loss may be much lower than the value of the remedial work required to put the offices into the condition required by the lease.
In the event that the premises are sold, re-let, refurbished, redeveloped or even demolished, etc. following lease expiry, to the extent that post-lease events are considered relevant, such events can negate all or part of any loss suffered and therefore seriously compromise or prejudice the claim. These are examples of change in circumstances as referred to in section 10.4.
Input from other surveyors specialising in lettings, investment or property valuation may be necessary in order to substantiate an alternative measure of loss particularly where diminution in value is being considered.

In IRELAND, section 65 of the Landlord & Tenant (Amendment) Act 1980 provides as follows:- 
65 (1) "Where a lease (whether made before or after the commencement of this Act) of a tenement contains a covenant (whether express or implied and whether general or specific) on the part of the lessee to put or to keep the tenement in repair during the currency of the lease or to leave or put the tenement in repair at the expiration of the lease and there has been a breach of the covenant, the subsequent provisions of this section shall have effect."

(2) "The damages recoverable in any court for the breach shall not in any case exceed the amount (if any) by which the value of the reversion (whether mediate or immediate) in the tenement is diminished owing to the breach."

Further, "Dilapidations - The Guidance Note To Best Practice" produced by The Society of Chartered Surveyors and RICS provides inter alia thus:-

7.5 Principles of Damages

7.5.1 "A landlord cannot recover more than its loss. The purpose of damages is to compensate an injured party for its loss. It is not to be punished. That is the position regardless of the nature of the breach(es)."

7.5.2 "As a consequence of the common law and statutory positions described below, generally, the damages recovered by a landlord will be agreed or determined by reference to:-

  • The cost of works;
  • The diminution in the value of the landlord’s reversion;
  • Whether the property has potential for redevelopment or refurbishment;
  • Or
  • Consequential costs;
  • A combination of the above;
7.5.3 "How that loss is assessed is discussed in section 7.6 below."

7.5.4 "The common law position is that, where there has been a breach of the repair covenant, the normal measure of damages is the cost of repair."

7.5.5 "Where there have been breaches of covenants other than the repair covenant, damages are usually assessed at common law by reference to the diminution in the value of the landlord’s reversion but, in an appropriate case, can be assessed by reference to the cost of works." 

7.6 Assessment of Loss

7.6.1 "It is usual for the landlord’s loss at the termination date of the lease to be assessed by reference to the cost of works. Whether the unadjusted cost of works properly reflects that loss will depend on a number of factors, including:- 

  • The landlord’s intentions for the property;
  • Whether the landlord has carried out, or intends to carry out, the works;
  • Whether the property has potential for redevelopment or refurbishment;
  • The market for the property;
  • and
  • What arrangements might be made with a new tenant.
The costed repair figure might only be a starting point from which adjustments need to be made. Those adjustments are known by various names, including 'diluted effects' and 'supercession'." 

We have ever increasing requests from (solicitors and/or building surveyors for) both owners and former occupiers for valuation input in dilapidations cases affecting commercial premises in both Scotland & Ireland.



Paul J Raeburn BSc (Hons) MRICS DipArb FCIArb 
RICS Accredited Mediator
 
Neil Burridge BSc (Hons) MRICS ACIArb
RICS Registered Valuer

RICS Registered Valuer
Regulated by RICS
Chartered Institute of Arbitrators