Why Dilapidations Settlements are Minimised by having both a Building Surveyor and Valuer

The key reason why any tenant settling a dilapidations claim using just a Building Surveyor (BS), will be paying out over the odds.

Almost all commercial & leisure properties vacated at break/lease end, need works done by the landlord to modernise/repurpose so as to maximise marketability. These works will override (supersede) dilapidations items which the BS has to accept as breaches (of covenants to repair, redecorate and reinstate alterations) and price to remedy. It is the Valuer – not the BS – whose discipline is open market transacting/leasing, who is informed to judge which costed remedies will likely be superseded in the Property’s evolution to its next life. It’s irrelevant whether or not the actual landlord “admits it”.The law and practice capping dilaps damages at the lower of Cost of Works OR impact on reversionary value rely upon the expert opinion of the Valuer as to what the hypothetical purchaser would likely do with the Property.

Some examples of where the specialist Valuer will secure significant reductions on the lowest sum a BS alone can get to include :

• Offices Generally: the common argument these days is sometimes perhaps wishful, being that the landlord will convert to resi.But absent a careless Planning App betraying this intention, this can be almost impossible to succeed. However, as it is improbable that the vacated offices could ever be relet with just the dilaps attended to, as they’d be in great shape, but trapped in a time-warp, much the same significant probable supersession arguments apply in terms of all but unavoidable at or about gutting and extensive modernisation
• Sheds: certain breaches, whilst expensive costed remedies by BS’s, are usually irrelevant to lettability/value and so should be negotiated out by specialist Valuers (eg painting of steelwork).Other items which the BS has no choice but to accept in negotiating for you as tenant (because they are “breaches” with costs to fix), can be negotiated out by Valuers as likely to be superseded eg works to dated office content (likely to be gutted and replaced with modern/new in any event), and oversheeting/liquid-coating corrugated asbestos roofs because of some leaks, as the hypothetical purchaser would again do so anyway (ie even if “in repair”) so as to future-proof (get a 10 year + warranty to aid reletting). These works go way beyond “repair” per see. They are driven by market forces (value maximisation) and so are beyond what a BS alone can reasonably be expected to successfully negotiate out
• Retail: works to upper floors internally can commonly be negotiated out by the Valuer on the basis of resi conversion and even if not, works to what is likely surplus/voidable space are irrelevant to Value. Stripping back to “shell” makes a unit less lettable these days (few retailers can/will afford to fit out from scratch and would rather inherit and recycle).In any shopping centre, the case for NIL dilaps in terms of “Diminished Value” is reinforced by the observation that “the reversion” is of course the entire Centre, of which your vacated unit is an inextricable part. It is improbable that one more slightly tatty unit in a Centre with many voids and temp traders makes a jot of difference to the value of “the reversion”

And so on.

The common theme is that “remedying the breaches” is rarely itself going to make a property lettable again. Other works are required to evolve it to meet modern demand and those works will override/supersede costed remedies otherwise accepted by your BS. These can include significant sums. It is the role of the specialist Valuer to identify and negotiate these out. This is beyond the B.S’s expertise and knowledge.

Also, some remedies of breaches which your BS has to accept costs to remedy, are simply not relevant to “value”.

This is why it is surely a soft sell, common sense, that dilapidations settlements are minimised by having both a Building Surveyor and Valuer working together, from the outset.

If you have any queries in relation to the above, please contact paul@dilapsolutions.com.