Dilapidations claims can be based on the cost of different works.
The Court of Appeal has upheld a Judgment awarding a landlord damages based on the cost of repairs undertaken notwithstanding the works involved alterations and improvements. In 2008, Tiger Aspect vacated an office building in Soho Square, London that they had occupied since 2000 under 2 leases originally entered into in 1973. They did so without undertaking any repairs prior to vacating or reinstating any of the original mechanical or electrical equipment that had been removed or made inoperable during the leases.
The landlord, Sunlife, then undertook substantial works, some of which it conceded were enhancements to the building which it could not claim for. In relation to the repairs Sunlife did claim for, Tiger Aspect sought to argue that a very large part of these works were alterations and/or improvements that were irrecoverable under the leases. Particular issue was taken with the complete replacement of the heating, ventilation and air-conditioning system (the HVAC system”) with a completely modern and different system that had its main plant relocated from the basement to the roof.
In essence, it was Tiger Aspect’s defence that the building in its 1973 state would have been unlettable in repair in 2008 and that a tenant under leases for 35 years could not be held liable for works carried out by the landlord thereafter which improved the building beyond the state it was originally let in, even though replacing the old HVAC system with a much more modern system was a cheaper and quicker option.
At first instance, the Judge disallowed certain parts of Sunlife’s claim on the basis that some works did go beyond repair but he allowed the bulk of the claim for the cost of works and fees in the sum of £1,353,254. Upon the basis of his own calculations, he held that the diminution in value of the building would have been greater than the cost of the works so the damages did not fall to be reduced pursuant to Section 18 (1) of the Law of Property Act 1927.
Tiger Aspect successfully obtained permission to appeal. It argued that the diminution in value was only £423,000 and that Sunlife’s valuation expert had accepted this and the Judge should not have undertaken his own valuation or based his findings on the quite different works undertaken by Sunlife.
The Court of Appeal first considered whether Section 18 (1) applied at all to the damages awarded in this case and it held that it did not? The purpose of S.18 (1) is to prevent landlords recovering damages over and above the actual loss in value to the building cased by the disrepair. The Court held that the Judge had correctly and meticulously assessed the common law measure of damages based on the cost of the appropriate repairs, even where those repairs involved installing something different in accordance with modern standards and especially when they were a cheaper option. It therefore held that the damages were correctly based on the costs of the appropriate works and it rejected the claim that, where the exact repairs were not undertaken, the tenant no longer bore the burden of proving that the claim for damages was capped by Section 18(1).
The Court also rejected the argument that Sunlife’s valuation expert, Paul Krendel of D&J Levy, had agreed that, if the building had been left as originally let and in repair, this would have limited the damages to £423,000. It held that it was clear that Mr Krendel’s figure in this respect was based on Tiger Aspect’s valuer’s argument as to supersession which he did not accept and that it would have been quite wrong for the Judge to have used Mr Krendel’s headline figure when he and Mr Krendel both rejected the assumption it was based on. Moreover, the Court held it was perfectly in order for the Judge to do his own calculations based on his own findings and to rely on Tiger Aspect’s valuer’s report even though he had not been called as a witness.
Accordingly, the Appeal was dismissed and Tiger Aspect have to pay the price for leaving the building in such a poor state.