This case demonstrates the danger of exaggerating a claim for dilapidations at the end of the term. The landlord initially claimed a sum of approximately £557,000. The claim was eventually settled by consent for just £1,073.

Under section 18 of the Landlord and Tenant Act 1927, a landlord's damages are capped at the diminution in the value of the reversion. However, the statute also provides that no damages may be recovered if structural alterations are to be made to the premises which would render the repairs valueless.

In this case, although the landlord had carried out some internal work, this was not referable to dilapidations but to a wholesale refurbishment of the building. The external works the landlord had claimed for had not in fact been carried out at all.

Under the Civil Procedure Rules, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party. Where a case is settled, costs are normally dealt with as part of the settlement. Where this is not done, it will not normally be possible to say in the light of the compromise that one or other party has been successful. In those cases, there will usually be no order as to costs. The court will not usually depart from this unless there are clear determined facts which enable the court to decide what other order should be made.

The court found in this case that, although the parties had settled the claim, the tenant was the clear winner and the landlord the clear loser. On that basis it awarded the tenant its costs.

The tenant went further and claimed its costs on an indemnity basis. This would entitle the tenant to recover a greater proportion of its costs from the landlord than would be the case on the standard basis. The court may award indemnity costs where the facts of the case and/or the conduct of the parties is such as to take it out of the norm. There should normally be a significant level of unreasonableness or otherwise inappropriate conduct in a party's pre-litigation dealings for such an award to be made.

In the court's view, the landlord's conduct had been such as to take it out of the norm and indemnity costs were awarded to the tenant.

Things to consider

The effect of the claim being exaggerated was that the parties were prevented from having realistic discussions at an early stage to try to resolve the dispute. The claim would probably have settled much earlier if the tenant had been presented with accurate figures. The position may be different where the tenant is in a position at an early stage to evaluate the landlord's figures fully.

The Property Litigation Association's Pre-Action Protocol on dilapidations was revised in May this year. Although the protocol has no formal status under the Civil Procedure Rules, it is annexed to the Royal Institution of Chartered Surveyors (RICS) Dilapidations Guidance Note and is considered to represent best practice. Under the Protocol, the surveyor responsible for preparing a schedule of dilapidations should confirm that the schedule takes into account the landlord's intentions for the property.

Care must also be taken over the particulars of claim themselves. In this case the statement of truth on the particulars of claim had been signed by the landlord's solicitor. However, the particulars contained a number of inaccuracies. For example, they stated that works had been carried out when in fact they had not been, and the dates during which the works were stated to have taken place were incorrect. It is important that both the schedule of dilapidations and the accompanying claim are verified carefully. This will necessitate tri-partite discussions between the landlord, its solicitor and its surveyor, to ensure accuracy.

Business Environment Bow Lane Ltd v Deanwater Estates Ltd