UK: Value Of Dilapidations

Last Updated: 9 September 2016
Article by Lesley Robinson

In a recent case on the value of dilapidations, both parties' expert valuation evidence was criticised by the judge ... in reaching their conclusions they lacked 'objective reasoning' and were unable to provide clear analysis of their evidence to support their subjective opinions.

Lesley Robinson provides an update on this recent case

Recently, the Technology and Construction Court reminded parties how damages for dilapidations should be valued.

In Consortium Commercial Developments Limited v ABB Limited [2015] EWHC 2128 (TCC) the judge had to examine the valuation evidence put forward by both parties' experts in relation to the value of dilapidations. The landlord's expert contended damages was the cost of repairs (£315,000) while the tenant's expert argued it was limited to the loss or diminution in the value of the landlord's interest under section 18(1) Landlord & Tenant Act 1927 (£75,000).

The outgoing tenant did not carry out any repairs, arguing that there was no demand for the property, in or out of repair given its age, character and location. The landlord did not do the works at expiry of the lease arguing that it wanted to recover the costs from the tenant beforehand and that it was better to wait for the rental market to improve so it would then re-let the property in repair at a higher rent. There was also an argument about how the costs of reinstatement works should be assessed.

'The judge was further critical that, on cross examination, the failure to make reasonable concessions when errors were apparent further undermined an expert's credibility'

Both parties' expert valuation evidence was criticised by the judge. He complained that in reaching their conclusions they lacked 'objective reasoning' and were unable to provide clear analysis of their evidence to support their subjective opinions. He was further critical that, on cross examination, the failure to make reasonable concessions when errors were apparent further undermined an expert's credibility.

The judge carried out his own objective analysis of the comparable evidence. He decided that a hypothetical purchaser would not have deducted the full cost of the repair works from the in-repair value of the property, but would instead factor in an amount for the repairs it would want to carry out. In his opinion the out-of-repair value was £675,000 but, given the state of the market at the time the lease ended, damages were limited to the diminution in value of the landlord's reversion, which the judge concluded was £225,000.

As for the reinstatement works, it was decided the section 18(1) cap may apply if the landlord has not done these works and has no intention of doing so. However, provided the landlord has a clear intention to re-let the property in good repair in better market conditions and that it would be reasonable to carry out the reinstatement works to achieve this, the measure of damages was the full cost of the reinstatement works.

The judge then concluded there was no loss of rent claim as the market conditions were such when the lease ended that the property would have been difficult to re-let even in good repair. The loss of rent was not attributable to the state of the property but to the market and therefore this part of the claim failed.

Although not new law, this case is a reminder of how dilapidations will be valued and that an expert's duty is to the court. Expert evidence will be scrutinised. Intention is a key factor and all statements made must be supported by clear objective analysis.

This article was first published here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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