Dilapidations Deep Dive - the implications of the Dandara case for professional advisors

The recent High Court decision in the case of Dandara SE Ltd v Medway Preservation Ltd & Anor serves as a critical reminder of the consequences of overlooking or disregarding clauses in property contracts. In this dilapidations insight, we consider the implications of this decision for surveyors and other professionals advising on dilapidations claims.

Dandara case background

In brief, the facts of this recent case are that the parties had exchanged a contract for the sale of land. The claimant subsequently sought to terminate the contract and issued a claim for the return of the deposit. The defendant argued that the contract contained a mandatory expert determination clause and that the claim should be stayed by the court to allow expert determination to proceed. 

The clause provided as follows:

“Any dispute or difference between the parties as to any matter under or in connection with this contract shall be submitted for the determination of an expert (the Expert) and the following provisions of this clause 28 shall apply to any submission and to any other matter required to be dealt with by the Expert”

The court agreed with the defendant that the expert determination clause was mandatory (the word ‘shall’ being determinative in this regard) and that it was an all-embracing, ‘one stop shop’ clause applicable to all disputes. The proceedings were therefore stayed to allow the expert determination to proceed. 

The implications for dilapidation claims

When determining whether a tenant has breached their contractual repairing obligations, the starting point for the landlord and their advisors is to read the lease and any other supplemental contractual documentation that is admissible in evidence. 

The obligations will be in the form of lease covenants. This exercise will therefore generally focus on identifying and interpreting covenants such as those requiring the tenant to repair, reinstate, decorate, yield up or comply with statutes etc. This checklist will also include establishing whether there is any contractual liability for costs. 

Following the decision in Dandara, it is imperative that the checklist also includes identifying and interpreting the scope and precedence of any expert determination clause. The scope of the clause in Dandara was very far-reaching in that it required an expert to deal with all disputes. 

Some clauses may be more limited with the effect of separating out those categories of disputes to be referred to an expert and those to be referred to court. The question of whether the clause takes precedence over the court’s jurisdiction is a simple matter of interpretation; in Dandara this turned on the use of the word ‘shall’ as opposed to ‘may’.

The implications of the Dandara decision also need to be considered in the wider context of the rules that govern civil procedure (the Civil Procedure Rules), more specifically: 

1. The Pre-Action Protocol for Claims to Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy (otherwise known as the Dilapidations Protocol). The Dilapidations Protocol provides a very structured framework of rules and procedures for landlords and tenants to follow in the spirit of achieving an early, fair and efficient resolution of any dispute. At the heart of the Dilapidations Protocol is the objective of settling the dispute through alternative dispute resolution, otherwise known as ADR. and avoiding litigation through the courts.
   
   Expert determination is a form of ADR and so in cases where mandatory expert determination clauses apply, the parties will still need to be mindful to comply with the processes and timelines of the Dilapidations Protocol prior to referring the matter to the expert. It is also worth noting that if the mandatory clause is ignored or overlooked and proceedings are issued then parties can expect for proceedings to be stayed to allow the expert determination to proceed.
   
   
2. Very recent changes to the Civil Procedure Rules now place courts under an obligation to promote ADR with the duty to actively manage cases includes ‘ordering or encouraging parties to use, and facilitating the use of, alternative dispute resolution’.  With this, we can expect courts to be even more rigorous when it comes to cases where landlords have issued proceedings in the face of expert determination clauses, mandatory or otherwise. Not only could proceedings be stayed as in Dandara but there may well be cost consequences. 

Conclusion

Dandara is a salient reminder to all professionals advising on dilapidations to ensure that their contractual due diligence includes properly considering the scope and precedence of any expert determination clause as well as advising their clients as to the implications of proceeding to litigation regardless. Failure to do so could lead to landlords incurring unnecessary time and money in pursuing litigation which could have been avoided, conduct which could also give rise to hefty costs penalties.    

For more information, please contact Warren Reid.