Insight

Dilapidations insurance - help or hinderance?

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In a recent development in the property industry, tenants can now take out insurance to provide security against landlords who are pursuing dilapidations at the end of a lease

In a recent development in the property industry, tenants can now take out insurance to provide security against landlords who are pursuing dilapidations at the end of a lease. Phil Kentish, Partner in Building Surveying at Bidwells questions whether this will help either party – and suggests it might even result in more court cases.

Dilapidations Insurance policies, which can be taken out to cover single or multiple buildings, have been introduced with the aim of providing tenants reassurance on the costs for repairs at the end of a lease, and will cover the disparity between their Dilapidations Assessment and that of the landlord’s actual claim at lease end.

In theory this sounds a good idea for tenants, but this is based on the premise that the current dilapidations process is broken, whereby tenants are settling at levels over and above their liability. We simply have not found this to be the case; there is a Protocol in place – adopted under Civil Procedure Rules in 2012 – which all good dilapidations surveyors should abide by. It is the professional duty of the appointed surveyors on both sides to work together to negotiate the right settlement, and avoid the claim going to court.

Introducing dilapidations insurance potentially works against the Dilapidations Protocol and the appetite for negotiated settlement could be diminished; tenants, confident with this new insurance in place, may unwittingly entrench themselves in a disproportionate position knowing their costs are covered. This might have the result of driving more cases to court than under the established Protocol, which has overall succeeded in keeping dilapidations costs fair.

And, of course, dilapidations insurance comes at a premium payable by the tenant with a pre-agreed excess. Inevitably, the devil will be in the cover detail. It is questionable whether this product will gain momentum, or whether this is an unnecessary invention by insurers.

For more information on Dilapidations, please contact Phil Kentish.