Mediation in dilapidations claims
Henrietta is an RICS Accredited Evaluative Mediator. Below is an article written as part of that qualification, exploring the role of mediation in section 18 dilapidations claims.
Any practitioner experienced in terminal dilapidations claims will tell you that such a dispute is unlikely to be resolved quickly. At the time of writing, I have an active case where the lease expired eight years ago, and such a long delay is not an unusual occurrence. These wrangles are notorious for their protracted nature, one consequence of which is generally a large bill for professional fees. As noted in Dowding and Reynolds, “what starts off as a claim over disrepair ends as a dispute over who is to pay the costs incurred in relation to the claim”. This is true both where cases are ultimately litigated, and where they settle prior to a Court determination (as is the case for the majority of claims).
Mediation: prevailing levels of awareness and application
Where in other fields, litigation can be a useful way of setting a precedent or finally determining a recurring issue, it is less useful in dilapidations claims where the dispute often relates to the particular wording of a specific lease, the unique characteristics of a property, or issues in a specific market at the valuation date. A determination on such a narrow point is unlikely to be usefully applied in another dispute in future years.
In other words, the law alone does not provide the answer. This makes mediation, subject to certain conditions, a very useful tool to try to reach a mutually acceptable compromise, preferably before costs mount to disproportionate or unpalatable levels. Indeed, one aim of the “Dilapidations Protocol” is “to enable to parties to avoid litigation”, although it is “expressly recognised that no party can or should be forced to mediate or enter into any form of alternative dispute resolution”. However, the Protocol has perhaps not been as successful at discouraging litigation as could have been hoped: one year after it was formally adopted into the Civil Procedure Rules, 66% of practitioners at a professional event voted that the Protocol made settlement no more likely; and 70% said disputes were no less costly.
With litigation being highly unattractive for these disputes, and with the Dilapidations Protocol encouraging (but not enforcing) mediation, it is surprising that practitioners in this field are in fact not highly experienced in mediation. In a 2019 poll taken at the RICS Dilapidations Forum Conference, less than 10% of the 160 delegates had participated in a dilapidations mediation. This could be testament to their negotiating prowess, or it could be a demonstration that mediation is not being effectively utilised by experts in this field.
Cost consequences (“The stick”?)
Again, this is particularly surprising giving the emphasis on the use of alternative dispute resolution in the Civil Procedure Rules: “Litigation should be a last resort … the parties should consider whether negotiation or some other form of ADR might enable them to settle their dispute without commencing proceedings”. If a party can be said to be unreasonable in their refusal to engage in ADR, the Court may take it into account when deciding on the costs order. The outcome (i.e. even if the unreasonable party is successful in Court) is irrelevant – their refusal may result in an order for them to pay the unsuccessful party’s costs. Further, a party attending a mediation but adopting an unreasonable stance would be in the same unhappy position as one who unreasonably refused to mediate. This avoids parties paying lip service to the Civil Procedure Rules by attending a mediation merely to tick the box, but without truly entering into the spirit.
This scenario has been borne out in dilapidations cases:
In Thakkar v Patel, the claimant landlord issued a claim for £210,000 plus interest. The defendant tenant issued a counterclaim for £41,875 for rent paid when the premises could not be occupied because of a flood. Both parties initially expressed a willingness to mediate. However, the tenant stopped responding to the landlord’s attempts to set up the mediation, leading to the landlord eventually losing confidence in the process. Jackson LJ laid out five characteristics of the case which meant it was eminently suitable for mediation, and which meant there was a “real chance of achieving a settlement”:
- The dispute was a commercial one, i.e. purely about money;
- There was a relatively small gap between the parties (the defendants were willing to pay £30,000. The claimants became willing to accept £40,000.);
- The cost of the litigation was disproportionate, i.e. vastly greater than the sum in issue;
- Lengthy bilateral negotiations had proved unsuccessful; and
- A mediator would have pointed out the small gap between the respective positions and the future costs of the litigation. Jackson LJ said he “would be astonished if a skilled mediator failed to bring the parties to a sensible settlement”.
As a consequence of their reluctance to mediate, the tenant was ordered to pay 75% of the landlord’s costs.
In PFG II v OMFS Co 1 Ltd, the tenant did not respond to two written invitations to mediate the dispute. Briggs LJ wrote:
I consider that the dispute was, by April 2011, eminently suited to mediation. Breach of the repairing covenants was not seriously denied, and the only issue which might have been said to go to liability arose from the [tenant’s] reliance on section 18, a matter heavily dependent upon competing valuation evidence. The dispute gave rise to complicated matters of detail eminently likely to cost a disproportionate amount to litigate to trial, even ignoring the attrition upon management time likely to be required for that purpose.
The delinquent tenant was punished by being denied some of their costs to which they would have normally received under its Part 36 offer.
The “stick” to drive parties to ADR is therefore well established in the dilapidations world, but what of the “carrot”?
Advantages of mediation and its application to section 18 cases
The settlement statistics alone are persuasive: around 75-80% of cases settle on the day of the mediation, with a further 10-15% settling shortly afterwards. These statistics are not for dilapidations cases specifically, but demonstrate that mediation has universally high success rates. The other advantages are well-rehearsed: confidential, relatively quick and inexpensive, flexible, and designed to create a mutually satisfactory outcome where a commercial relationship can be preserved.
For the parties, mediation therefore offers the opportunity for certainty of outcome within a reasonable timeframe, and the chance to limit costs to a more palatable level. Why, then, are we not seeing more cases being settled this way?
Cynically, you could think that professional advisors are reluctant to advise their clients to pursue mediation as it may mean they miss out on a chunky fee for litigation. Ever the optimist, I hope this is not the case. A 2021 survey instead found that misconceptions may be the root cause: professionals are concerned that proposing mediation (whether to a client or to the other side) can be seen as a sign of weakness or failure during a negotiation. Respondents to the survey also showed a reluctance to mediate, believing it an unnecessary additional expense when the parties may achieve the same end result via independent negotiation.
However, this misses a key strength of the mediation process. It has always been true that parties can settle a dispute through their own means. However, the mediation process has evolved and been honed over many years to assist the parties “to explore and analyse under conditions of complete confidentiality, all the commercially relevant options for settlement open to them”.
The expertise of the mediator is also a significant advantage that parties and their advisors often overlook. Section 18 dilapidations valuations have sometimes been considered a “dark art”, a mystery to even the most experienced valuation surveyor, never mind a district judge. If the parties engage a third party who is both experienced in dilapidations disputes as well as being an accomplished mediator, there is no danger of a wasted day.
Even if the statistics are defied and a settlement is not reached, it does not mean that the day was not a success. The parties would have had the opportunity to assess their own case as well as that of the other side, and even to rehearse their arguments. Even if global settlement is not possible, the mediation process may help to narrow the issues or to agree a few points, leaving a smaller focus (and therefore a smaller bill) for the Court process.
It seems as though a greater awareness of both the “carrot and the stick” may be required before specialist dilapidations practitioners truly embrace mediation. For their clients paying the bill for litigation, we need to hope that the day of enlightenment dawns sooner rather than later.
HH October 2022
Dowding & Reynolds, Dilapidations: The Modern Law and Practice, 7th edition, Sweet & Maxwell . At paragraph 35-01
 McAllister, J. Dilapidations & Mediation: A Perfect Marriage? . Available at: https://www.landlordzone.co.uk/pdf/Dilapidations-Mediation.pdf [Accessed 10 October 2022]
 Pre-Action Protocol for Claims for Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy (the ‘Dilapidations Protocol’). Available at: https://www.justice.gov.uk/courts/procedure-rules/civil/protocol/pre-action-protocol-for-claims-for-damages-in-relation-to-the-physical-state-of-commercial-property-at-termination-of-a-tenancy-the-dilapidations-protocol#IDAQBDLC
 Practice Direction – Pre-Action Conduct and Protocols, paragraph 8. Available at: https://www.justice.gov.uk/courts/procedure-rules/civil/rules/pd_pre-action_conduct
 Earl of Malmesbury v Strutt & Parker  EWHC 424 (QB)
  EWCA Civ 1288
 https://civilmediation.org/facts-about-mediation/#:~:text=The%20average%20mediation%20lasts%20just,of%20all%20cases%20being%20settled. [Accessed 10 October 2022]
 https://www.morton-fraser.com/insights/why-lawyers-dont-use-mediation [Accessed 10 October 2022]
 RICS Guidance Note, Mediation, 1st edition. Available at: https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/sector-standards/dispute-resolution/mediation-1st-edition-rics.pdf
 https://thecta.co.uk/wp-content/uploads/2021/10/Shining-a-Light-on-the-Dark-Art-of-Diminution-Valuations-in-Dilapidations-Claims-A-Response-to-COVID-19-1.pdf [Accessed 10 October 2022]