Summary

In assessing the diminution in value of the landlord's reversion caused by a tenant's breaches of repairing covenants, a judge had been entitled to conclude that the amount of the diminution could be inferred from the cost of the necessary repairs.

Facts

The appellant tenant (T) appealed against an assessment of damages ([2013] EWHC 463 (TCC), 147 Con. L.R. 105) due to the respondent landlord (S).

T had leased commercial premises from S but left them in very poor condition at the end of the lease, in breach of its repairing covenants. S carried out extensive repair works and sued T to recover the cost of those works. A judge concluded that the cost of the works was approximately £1.3 million. He assessed the actual value of the reversion at the end of the lease and the value of the reversion in the condition that it ought to have been (an "in repair" valuation), and concluded that the diminution in value exceeded the cost of the necessary works. Accordingly, he found that the statutory cap on the measure of damages under the Landlord and Tenant Act 1927 s.18 did not apply. T did not appeal against the assessment of the cost of the works.

T submitted that the judge had erred in his calculation of the diminution of value and should not have used its expert valuation as a template to reach an "in repair" valuation, because its valuer had not been called to give evidence.

Held

(1) At common law the measure of damages recoverable by a landlord at the end of the lease for breaches by the tenant of his repairing obligations was the cost of the repairs that the tenant should have carried out, plus loss of rent during the period that those works were done, Joyner v Weeks [1891] 2 Q.B. 31 considered. However, the common law measure of damages was capped by s.18 which limited those damages to the diminution in value of the landlord's reversion caused by the breaches. The conventional way of calculating that diminution was by valuing the reversion in the state it actually was at the end of the lease and comparing that value with the value in the state it should have been at the end of the lease. The difference between the two was the diminution in value of the reversion. The judge had fully appreciated the nature of his task in assessing the common law measure of damages, namely to find the sum that would put the premises into the condition in which the tenant ought to have left them. He had carried out that task with conspicuous care. The instant case was different from Mather v Barclays Bank Plc [1987] 2 E.G.L.R. 254 because in that case the premises were inevitably going to be remodelled for the incoming tenant. In the instant case, if T had left the building in the state in which it ought to have been, S would not have carried out the works that it did, Mather considered. The judge was therefore correct to conclude that the amount of the diminution in value was to be inferred from the costs of the repairs reasonably necessary to make good the loss caused by T's breaches of covenant. That was sufficient to dispose of the appeal (see paras 1, 7, 11-12, 16-17 of judgment). (2) In arriving at an "in repair" valuation, the judge had taken T's valuation methodology and substituted the figures that he found to be the cost of the work that represented S's loss as a result of T's failure to comply with its covenants. T's decision not to call its valuer to give evidence did not make his report disappear. Under the CPR r.35.11 a party could use the report as evidence. There was therefore no objection to the judge doing so. Insofar as the judge was using the valuation as a template, having described its methodology as uncontroversial, he was entitled to do so. The valuation was a residual valuation and the eventual output was thus heavily dependent on the inputs. The judge was entitled to adjust the figures in order to insert the correct inputs for the cost of works (paras 35-37, 39).

Appeal dismissed