Valuation in dilapidations
Valuation in dilapidations claims is one of our core specialisms. Richard Kay FRICS and Henrietta Hammonds FRICS FCIArb have a combined experience of over forty years in this field, acting as valuers for both landlords and tenants in disputes and negotiations. The firm works nationally, including in dilapidations claims in Scotland (alternative measure of loss diminution valuations).
The tenant’s obligations
Most commercial leases require the tenant to keep the premises in repair, decorate them, comply with statutory requirements, and reinstate any alterations made during the tenancy. When the tenancy comes to an end, if the tenant hasn’t done some or all of these things, the landlord can require payment in lieu. The obvious starting point is the cost of doing the work — but this is subject to an important statutory limit.
The statutory cap — section 18(1) of the Landlord and Tenant Act 1927
Where the work in question can fairly be called “repair”, section 18(1) of the Landlord and Tenant Act 1927 steps in (in England and Wales – it does not apply in Scotland). It says the landlord can only recover the diminution in the value of the reversion — in plain terms, the loss in value of the freehold interest caused by the tenant’s failure to repair. This is what’s known as a section 18 valuation, or a diminution valuation, and it’s what we specialise in.
Where the tenant’s failure goes beyond repair — reinstatement of alterations, for example — the measure of loss is broader, but it usually still comes down to the diminution in value of the property.
The valuation
What we have to work out is:
- A) what the property would have been worth had the tenant done everything it was supposed to do; and
- B) what the property was actually worth at the end of the tenancy, in the condition it was actually in.
The difference between A and B is the diminution in value. It sounds straightforward, but in practice it frequently involves complex hypothetical valuation scenarios and a detailed knowledge of the relevant case law.
Our role
We act for both landlords and tenants — the valuation principles are the same for both sides. Our work typically includes:
- calculating and advising on the diminution in value;
- acting as expert witnesses in Court should proceedings be issued;
- advising on tactics and strategy;
- working alongside solicitors and building surveyors throughout.
Our website contains a number of articles on dilapidations valuation, including pieces on the stand in the street method, plain vanilla diminution, common misconceptions, and the development of Scots law on dilapidations – please take a look around.