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A lease granted in 1996 had expired in June 2011. Despite the passage of time, the tenant’s breaches of covenant at the property had not been remedied by the landlord as at the trial date.
The landlord’s position was that it wished to recover from the tenant before spending money on the repairs required. It also thought it would be more sensible to await the improvement of the market in order to achieve a better rent, rather than carrying out expensive works and offering the premises at a low rent.
The parties’ surveyors were agreed that the costs of remedying the tenant’s breaches amounted to £315,258 – with £295,665 being the cost of repairs – and that the works would take around 12 weeks to complete. The claimant landlord also sought loss of rent and rates during that period, amounting to £45,666.
The property had been sublet in late 2003 but the subtenant vacated about four years before the expiry of the headlease, with the defendant tenant receiving a payment of £160,000 from the sub-tenant in return for the release of its liabilities.
The tenant had marketed the property after the sub-tenant vacated but it failed to attract another occupier and remained vacant. It was common ground between the parties that, given the weak state of the market in 2011, the property had little prospect of being let while out of repair.
Since the landlord had failed to undertake the required works to the property, its claim for damages for disrepair was subject to section 18 of the Landlord and Tenant Act 1927.
(This provides that such damages cannot be greater than the diminution in the value of the landlord’s property as a result of the disrepair.)
The experts’ valuations of the premises at the expiry of the term both assumed that any sale would be to an intending owner/occupier (rather than an investor) and were as follows:
In good condition: £1.15m (L) v £775,000 (T)
In actual condition: £600,000 (L) v £700,000 (T)
The judge was reasonably critical of the approach of both experts to their evidence in the case. The landlord’s surveyor was described as showing “excessive subjectivity” and the judge felt there should have been more careful analysis of the comparable evidence.
The judge preferred the evidence of the tenant’s expert, although he noted that his figures required significant adjustment to reflect matters which had not been taken into consideration in his report.
The judge concluded from the evidence that the value of the property in good repair would have been £900,000 as at the termination date. However, he did not feel that any purchaser of the property in its actual state would have deducted the full cost of repairs from the purchase price and he assessed its value in this condition as £675,000.
This meant that damages for lack of repair were capped (by section 18 above) at £225,000, ie the difference between £900,000 and £675,000.
On the items of reinstatement included within the landlord’s schedule, the judge was satisfied on the evidence that the landlord was likely to undertake these works in due course. The appropriate measure of damages for these items was therefore the agreed cost.
As for the landlord’s claim for lost rent and rates for the 12 week period required for the works, the judge concluded from the evidence that the market in the area in 2011 was very difficult even for properties in good condition.
He therefore did not feel that the property would have let promptly even if it had been in good condition and rejected this element of the claim. (A proposed letting which had been agreed in September 2011 but which subsequently failed to progress to completion was not regarded as offering any assistance.)
The judge noted that:
“In poor market conditions it might take a year or even several years to find a suitable and willing tenant. When such a tenant is found, it will probably make no difference to the timing of the transaction with that tenant whether the property has been on the market for, say, 18 months prior to that tenant’s introduction on for, say, 15 months prior to that event.”
The judge also rejected the landlord’s claim for interest on the damages at the rate of 6%, which it sought to justify on the basis of the settlement which the tenant had received from the sub-tenant and which it had failed to use towards remedying its breaches of lease.
The judge did not feel that these circumstances justified any increased rate of interest above a commercial rate and therefore awarded 2.5% above base rate, ie 3% per annum.
The landlord’s claim of almost £361,000 was therefore significantly reduced to an award of £192,910 plus interest – although this was still almost three times the £75,000 cap which the tenant had sought to impose.
This briefing was written by Emma Humphreys.
For more information, please contact Emma on +44(0)20 7203 5326 or email@example.com