Summary

The court determined a number of issues arising out of a dilapidations claim and held that the damages payable to the landlord for the tenants' breach of their repairing obligations would be limited by the Landlord and Tenant Act 1927 s.18(1) to the diminution in value of the reversion.

Facts

The claimant landlord (H) brought a dilapidations claim against the defendant tenants (S) upon the termination of a lease.

The claim arose out of the lease of a building that had been purpose-built in the 1930s as a manufacturing facility. The building comprised a warehouse and ancillary offices, and the lease ran from 1984 to 2009. The central issues were (i) the extent of S's breaches of covenant; (ii) the measure of damages for diminution in value of the reversion under the first limb of the Landlord and Tenant Act 1927 s.18(1); (iii) whether H was entitled to recover loss of rent and damages representing the cost of insuring the premises until re-let.

Held

(1) In considering what works S should have carried out under the lease, and in determining the reasonable and proper cost of those works, the court had to take into account the fact that at the date of the lease, the building was a 50-year-old, purpose-built manufacturing unit. The court had to consider what a reasonably-minded tenant of the relevant user class would reasonably require, at the start of the lease, to render the building fit for occupation for the purposes contemplated by the lease. The evidence showed that it was necessary to replace two boilers and to repair three more at a total cost of £33,500. In terms of electrical equipment, the switchpanels were in need of repair and some of the switches had to be replaced, at a total cost of £53,000. Finally, the passenger and goods lifts were in need of repair, at a cost of £91,100. Taking those matters into account together with matters already agreed between the parties, the reasonable and proper cost of the works that S should have carried out was £2,399,104 (paras 52-54, 62-74, 75, 78-82). (2) The statutory cap in s.18(1) of the Act applied, and H's damages were limited to the value of the diminution of the reversion. The first limb of s.18(1) limited damages to the amount by which the value of the reversion was diminished because of the breaches of the repairing obligation. That involved consideration of the reduction in the market value of the landlord's interest on the term date because of the breaches. S's case was that any diminution depended on how the notional buyer would have assessed the value of the premises in and out of repair and whether, in the instant case, their value following subdivision would have exceeded their site value. They argued that the notional buyer would have paid site value with a small uplift had the premises been in repair. Thus, the central question was whether the value of the building for letting would exceed the site value. On the evidence, the cost of putting the premises into repair exceeded their in-repair value. That supported S's submission that the diminution in value was not represented by an out-of-repair valuation based on the cost of the works. The evidence did not show that H had any clear intention one way or another, but was keeping its options open in circumstances where it could not obtain or afford the funding necessary to put the building in repair. Thus, H could not be taken to have intended, at least in any sense that was probative of the diminution in value on the term date, to carry out the dilapidations for which it claimed. Once the resulting figure fell below the site value, then the diminution in value was the difference between the in-repair value and the site value. The site value was £2,100,000, and the diminution in value therefore £900,000 (paras 85-88, 90-91, 116, 126, 132-135, 139-146, 152). (3) It was common ground that loss of rent was only recoverable by way of damages for breach of the obligation to repair. Since s.18(1) applied to limit damages to £900,000, H could not recover loss of rent or damages representing the cost of insuring the premises until they were re-let (paras 147-149).

Judgment for claimant