Can a Landlord delay carrying out works but still be successful in a claim for damages for those works against a former tenant?

The case of Car Giant Limited and Acredart Limited v The Mayor and Burgesses of the London Borough of Hammersmith [2017] EWHC 197 (TCC) concerned an industrial site in Willesden where the London Borough of Hammersmith and Fulham ("LB HF") were tenants pursuant to a lease which expired on 21 February 2011. The case concerned the landlord's claim for diminution in value as a result of terminal disrepair (in the sum of £500,000). Before the proceedings reached the High Court, the parties had agreed the items of disrepair and the cost of remedying the breaches of the lease.

Since lease expiry, the landlord had carried out some works, and the parties' building surveyors had agreed the common law assessment for those works to be £183,897.86. The landlord had not, since lease expiry, carried out some further works (the agreed costs of which were £218,990) for which it was still claiming. The total cost of works claimed was therefore £402,887.86. However, the LB HF argued that the Section 18 cap in the Landlord and Tenant Act 1927 limited the landlord's recovery to £110,000.

The landlord's surveyor ignored the agreed common law assessment and argued instead that a hypothetical purchaser would have (a) asked a surveyor to quantify the approximate cost of repairs and that (b) that surveyor would have erred on the side of caution (since he or she would not have had the benefit of the detailed inspection and costings). This, in the opinion of the landlord's surveyor, would have resulted in a higher figure than the agreed sum.

The Judge held that this was an incorrect basis for a valuation and that the agreed figures should have been the "basic building block in the diminution calculation." In any event, he did not accept that the figure in the hypothetical purchaser's survey would have been higher and stated that the correct starting point was £402,887.86.

The Judge then drew a distinction between the works that had been carried out (for which authorities had already established that the costs expended were a good guide to the damage of the reversion) and those that had not been.

The Judge found that there was no explanation as to why the works had not been carried out, six years after lease expiry. The landlord's counsel sought to argue that these works had not been carried out due to lack of finance, not wanting to disturb the then occupiers, that there was a rolling programme of works and that it had been reasonable to hold back expenditure when the LB HF had been resisting payment. However, these arguments were not supported in evidence. Further, there was also nothing in evidence to suggest that the work would be done shortly or that the repairs were substantial and serious. Further, the Judge was mindful that units had since been let out on a market rent (suggesting that the remaining disrepair did not cause the landlord a material loss).

On the basis that the landlord's "action and inaction" had shed light on the diminution in value of the reversion, the Judge held that only the work actually carried out represented the true damage to the reversion and accordingly, that the recoverable damages should be limited to £166,000.

The Judge therefore awarded the landlord recoverable damages in the sum of £179,125 (£13,125 of which was in respect of the fees for preparing the schedule of disrepair) and interest was awarded from the expiry of the lease. This was in contrast to the landlord's original claim of £500,000.

Summary

This case shows that landlords who do not carry out the works of repair for which they are claiming, run a significant risk that they may be unsuccessful in a diminution in value claim. While this case does not seek to preclude landlords from claiming sums in respect of works that have not yet been carried out, it shows the importance of adducing strong evidence as to exactly why those works have not yet been carried out (e.g. perhaps the building has been sold). A landlord is of course more likely to be successful in a claim if the works have already been carried out or where it can clearly be established that there is a real intention to do so.

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