The Important Role of a Valuer for Diminution Valuations in Dilapidations Negotiations

Dilapidations negotiations are typically led by building surveyors. They prepare the claim for landlords and defend against claims for tenants. This is because dilapidations claims cover damages for not carrying out repairs, redecoration, and reinstatement of alterations. Building surveyors are experts in identifying these issues and pricing the necessary repairs.

Valuers, a distinct discipline of chartered surveyors, play a crucial role in dilapidations negotiations, particularly concerning the "Section 18/Diminution in Value" (DV) element. This element caps dilapidations damages at the lower of the negotiated cost of works figure or the impact on the property's open market value.

According to the Dilapidations Protocol, landlords must provide a DV if they have not done most or all of the claimed works. This requirement protects because the impact of dilapidations on a property's value is usually lower than the cost of works. Additionally, landlords who still need to start works may consider different ways to repurpose or modernise the property once the dilapidations are resolved.

It's surprising how many tenants settle a dilapidations claim without a diminution valuation. From a landlord's perspective, a strong and persuasive DV is essential to counter a potentially opportunistic one from a tenant.

The Protocol reaffirms tenants' longstanding right to provide their own DV, which almost always leads to lower settlements than relying solely on a building surveyor. Yet, many tenants still settle without obtaining a DV, perhaps due to the false economy of saving the extra fee or simply because their building surveyor failed to explain and recommend this course of action.

The valuer's role is crucial for tenants, serving as a second set of eyes. For example, a common issue is the erroneous claimed reinstatement of tenants' alterations, which can significantly contribute to a claim, especially for office spaces. However, carefully considering whether the claimed reinstatement is valid often isn't thorough enough. The starting point is to determine what was demised (leased). At lease renewal, what exists becomes part of the new demise unless the landlord's solicitors clearly state otherwise.

Even when referencing previous leases, unless the landlord can provide clear evidence that the claimed alterations were carried out by the tenant and that there is a contractual obligation to reinstate them, there is no such obligation. A knowledgeable valuer at the review stage can filter out more likely demised elements than a tenant's improvement to reinstate.

Considering this, the impact of the specialist valuer's DV, coupled with a cost of works basis, can lead to significant savings compared to settling through a building surveyor alone.

If you need assistance with a dilapidations claim or diminution valuation, please email paul@raeburnconsuting.com.