Negligence — Damaged building — Lease temporarily relieves tenant of obligation to pay rent — Whether landlord entitled to recover loss of rents from tortfeasor
On December 6
1990 a van driven by the appellant defendant left the road and crashed into a
car showroom in Springfield Road, Tottenham, owned by the respondent
plaintiffs. The showrooms were rendered unusable for a little over eight weeks.
At the time they were let to Mr Dagistan under a lease dated February 13 1990
for a period of nine years from October 30 1989. By clause 3 of the lease the
tenant covenanted to pay the reserved rent of £26,000 pa and the sum incurred
by the landlord in maintaining insurance against the ‘insured risks’. The
insured risks included damage from impact by road vehicles. By clause 6(3) of
the lease the tenant was relieved of his obligation to pay the reserved rent so
long as the premises were unfit for use by reason of an insured risk. The
damage caused by the appellant brought clause 6(3) into operation and the
respondents suffered from a loss of rent in the sum of £4,305.03. The
respondents brought proceedings and obtained a judgment for this sum in the
county court. The appellant appealed, contending that the respondents had no
right of recovery of this sum by reason of the decision of the court in Rust
v Victoria Graving Dock Co.
Co can be distinguished. In that case the circumstances and nature of the
disallowed claim were wholly different from those in the present appeal, there
the landlord was entitled to receive a ground rent for the term of the lease
and there was no permanent damage to his reversion. The general rule, cited in
the Rust case, that a reversioner can sue only in respect of damage
which will continue to affect the property when the reversion falls in, was
applicable to the facts of that case but is not of universal application. The
court in the Rust case upheld the right of the landlord to recover loss
of actual rent; the respondents’ claim in the present case was stronger and
clearer and on this point the case could not be distinguished. Because the
respondents’ building suffered physical damage the claim could not be
disallowed as a claim for purely economic loss. Nor could it be disallowed as
being for damages which the appellant could not have foreseen; damage to the
building could cause financial loss to the owner or tenant and it was not
necessary that the appellant should foresee the precise terms of the lease.
The following
cases are referred to in this report.
Hughes v Lord Advocate [1963] AC 837; [1963] 2 WLR 779; [1963] 1 All
ER 705; 1963 SC (HL) 31; 1963 SLT 150, HL
Rust v Victoria Graving Dock Co (1887) 36 Ch D 113
This was an
appeal from a decision of Mr Recorder Goudie QC, sitting in Edmonton County
Court, who had allowed a claim by the respondents, Laurence James Ehmler and
Adrian James Harris, for damages in negligence against the appellant, Steven
John Hall.
Timothy Briden
(instructed by B K J Lewis) appeared for the appellant; Nicholas Dean
(instructed by Sharman & Trethewy, of Bedford) represented the respondents.
Giving the
first judgment at the invitation of Parker LJ, NOLAN LJ said: On
December 6 1990 a van which was being driven by the appellant defendant down
Springfield Road, Tottenham, left the road and crashed into a car showroom
owned by the plaintiffs. The showroom premises were thereby rendered unusable
for a period of a little more than eight weeks.
At the time
they were occupied by a Mr Dagistan under a lease which had been granted to him
by the plaintiffs on February 13 1990. The lease was for a period of nine years
running from October 30 1989. By clause 3 of the lease the tenant was obliged
to pay, first, an annual rent of £26,000, subject to review, and, second, by
way of further or additional rent the sum or sums which the landlord might
expend in maintaining insurance against the ‘insured risks’. By clause 1(4)(a)
the insured risks were defined to include risks in respect of damage from
impact by road vehicles. Clause 6(3) provided, among other things, that if the
demised premises were damaged during the period of the lease by any of the
insured risks, so as to be unfit for use, the rent first secured — the £26,000
pa — should cease to be payable by the tenant until the premises were
reinstated.
The damage
caused by the defendant’s vehicle brought clause 6(3) into operation and,
accordingly, Mr Dagistan was relieved of the rental obligation during the
period for which the premises were unusable. The plaintiffs thus suffered from
a loss of rent which has been agreed in the remarkably precise sum of
£4,305.03. The plaintiffs claimed this sum (together with two small additions
in respect of expenses) from the defendant by way of damages for negligence. No
claim was made in respect of the cost of repairing the premises. We were told
that this cost had been met by the plaintiffs’ insurers, and had been covered
by an agreement between them and the defendant’s insurers. The defendant
admitted that the damage to the plaintiffs’ premises had been caused by his
negligence, and the plaintiffs’ claim for damages in the amount mentioned was
upheld by Mr Recorder Goudie QC in Edmonton County Court.
At first
sight, it seems a straightforward case. The defendant now appeals, however,
contending as he did before Mr Recorder Goudie that landlords such as the
plaintiffs have no right of recovery for loss of rent. Mr Briden, on his
behalf, accepts that if the terms of the lease had been such that the tenant
was obliged to continue to pay rent during the period when the premises were
out of use the defendant would have had to reimburse the tenant for the
unproductive expenditure thus incurred, but he maintains that the converse does
not hold good so far as the landlords are concerned. For that proposition he
relies upon the decision of this court in Rust v Victoria Graving
Dock Co (1887) 36 Ch D 113. The facts of that case are summarised in the
headnote, which so far as is relevant reads as follows:
Owing to the
negligence of the Defendants a building estate belonging to the Plaintiff was
overflowed by a flood. Part of the land was covered with houses (A) which were
in the Plaintiff’s possession. Another part was covered with houses (B) erected
by builders under building leases . . . The amount of damages to which the
Plaintiff was entitled was referred to a special referee. In respect of (A) the
referee allowed as damages (1) the expense of repairing the houses, and the
rent during the period of repairs; . . . As to (B), he found that
sum for depreciation of the selling value of the landlord’s interest, in
consequence of the houses being worth less to let.
The reference
to ‘rent’ at (A)(1) connotes the rent which would have been payable if the
properties were let.
The award of
the special referee was upheld by Chitty J in the Chancery Division. There was
no appeal against his decision so far as the damages under heading (A)(1) were
concerned, but the Court of Appeal reversed his decision in respect of the
damages under heading (B). Cotton LJ said, at p 129 of the report:
Now one
principle to be borne in mind is that damages can only be granted for injuries
which are the direct result of the act of omission or commission complained of.
Then it must also be borne in mind that where there are divided interests in
land the amount of damages to be paid by the Defendants must not be increased
in consequence of that subdivision of interests. All that they ought to be required
to pay is damages for the injury caused directly to the whole estate, and if it
is cut up into divers interests there is the difficulty of ascertaining, when
the parties are not all before the Court, what is to be awarded to the owners
of the different interests into which the fee simple is divided, a difficulty
which in the present case is considerable.
There is also
another principle which must not be forgotten. It is an undoubted general rule
that a reversioner or other person who has not an interest in possession in the
land cannot recover any damages unless it is shewn that the injury to the land
is of a permanent character, and will be injurious to the land when his estate
comes into possession. Mr Jeune gives for this the reason (which I think
probably is the sound one) that the tenant can bring his action and recover
damages for any injury caused by the act complained of to his estate or
interest. Then the reversioner can bring an action only for the damages which
will continue after the tenant’s interest has come to an end and his reversion
has become an estate in possession.
Cotton LJ went
on to note that in respect of the houses which were in the plaintiffs’
possession the special referee had given the sum required to repair the damage
caused by the overflow and had also allowed the rent which would have been
produced by the houses if let during the period of repair. Turning to the claim
under heading (B) he said, at p131:
The
Plaintiff’s counsel did not dispute the general rule, that a reversioner can
only sue in respect of permanent injury which will continue to affect the
property when his interest comes into possession; but, as I understand it, the
Plaintiff’s case was put this way. When a man buys land for the purpose of
letting it out on building leases the usual course is, that when some of the
houses are built and the ground rent is secured, he sells the reversion, or,
according to a common expression, sells the ground rent, in order to raise
money to go on with the speculation. It is said that, this being so, any
depreciation in the selling value of the ground rents is a ground for giving damages
to the reversioner. In my opinion that is erroneous. His interest is a
reversion, that is to say, his estate in the land is a reversion, and on the
general rule he cannot get any damage for any wrongful act of the Defendants
unless the damage is one which will endure and be continuing when the reversion
becomes an estate in possession.
At p134 of the
report Lindley LJ, in a concurring judgment, said that he did not propose to do
more than make one or two observations upon two points, and continued at p135:
The first is
one of some importance, and that is the question what is the proper method of
proceeding in cases of this description. Now I take it that the problem to be
solved is simply to find out the measure in money of the damage done to the
houses and land by the flood. That is the thing to be got at. Having got at
that, you have to consider how that sum ought to be apportioned among the
persons interested in the property damaged, ie, in the present case, how much
of that sum ought to be awarded to the Plaintiff in respect of his interests,
and how much to the tenants who are not before the court. Unless that principle
is kept steadily in view there is great danger of error. If a skilled person is
asked to value the damage done to each particular interest in the land without
giving him a warning to keep the above principle in mind, there which be great
danger of his assessing a number of amounts which in the aggregate will far
exceed the total damage done, and it appears to me that that is precisely what
has been done here. The great importance of bearing the right principle in mind
has induced me to make these remarks.
The only
other point to which I will allude is the diminution of ground rents, ie, the
diminution in value of the Plaintiff’s reversionary interest. That appears to
me to be a wholly inadmissible item. It is established by the report of Mr
Clifton and also by what he told us yesterday in Court that no damage has been
done to this property of so permanent a nature that the reversion when it falls
in will be worth one farthing less. If that is so, how can the reversioner get
anything at all in the way of damages?
When we were asked to give him something for diminution in the amount
for which his reversion would now sell, we should be departing entirely from
the principle upon which the Courts have always proceeded in determining the
amount of damages to be given to the owner of a reversion for injury to it. The
principle is perfectly well settled and will be found laid down in Simpson
v Savage; in Mumford v Oxford, Worcester and
Wolverhampton Railway Company, and in Baxter v Taylor*. Upon
looking at those cases it will be found that the Court has never given what is
in substance a loss of profit.
*Editor’s
note: Reported at (1843-60) All ER Rep 748; (1856) 156 ER 1107 and (1832) 110
ER 382 respectively.
Pausing there,
it is clear that the ‘loss of profit’ to which Lindley LJ referred in that case
was the temporary loss of unrealised profit which was claimed under heading
(B). It was unrealised because the plaintiff had not sold the land at its
diminished value nor, apparently, had he any intention of doing so. The loss
was temporary because no permanent damage had been done to the property: when
the reversion fell in it would be worth not a penny less than it was before the
flood. It is hardly surprising, therefore, that the damages claimed under
heading (B) were disallowed. But that carries the present case no further
because the circumstances and the nature of the claim under heading (B) are
wholly different from the circumstances and claim for loss of rent in the
present case. So far as the houses comprised in heading (B) were concerned, Mr
Rust was the lessor of a building lease, which presumably ran for a long time,
and during the currency of which he would be entitled only to a ground rent. He
would be unable to charge any rent for the use of the buildings until the
reversion fell in. In the present case, the plaintiffs are the lessors of a
completed building which, prior to the accident, was bringing them in a
rack-rent. Their simple claim for loss of rent is wholly different from the
claim of Mr Rust under heading (B) for temporary and unrealised loss of value
in the land. Mr Rust apparently continued to receive his ground rent in respect
of the heading (B) properties and, therefore, he did not and could not make any
claim for loss of rent. The court simply did not consider such a claim. In
these circumstances I do not see how its decision upon the heading (B) aspect
of the case could possibly be regarded as authority for the proposition that a
landlord can never make a claim in tort for loss of rent. The general rule,
cited in the Rust case, that a reversioner can sue only in respect of
damage which will continue to affect the property when the reversion falls in,
was applicable to the facts of that case but is not of universal applicability.
What the court
did consider, and uphold in that case, was Mr Rust’s claim under heading (A)(1)
for the lost rent which would have been produced by the houses if they had been
let during the period of repair. I am, for my part, unable to see any
distinction in principle between this claim, and the plaintiffs’ claim in the
present case for the loss of actual rent, which, but for the defendant’s
negligence, would have been produced by the premises under an actual letting
during the period of repair. The plaintiffs’ claim in the present case seems to
me to be stronger and clearer than that of Mr Rust in respect of heading
(A)(1).
I am unable,
therefore, to find any support for Mr Briden’s argument in the Rust
decision. In saying that, I do not overlook the passages in the judgments about
the need to ensure that the defendant is protected from overlapping claims by
persons having separate interests in the same premises, but no such problem
arises in the present case. On the contrary, if the defendant is right, the
fact that the plaintiffs and the lessee both have interests in the premises
under the lease of February 13 1990 prevents him, by virtue of clause 6(3) of
the lease, from having to pay damages to either. That would be a strange and
unjust state of affairs.
Mr Briden
advanced two further arguments. One was that, because the damage to the
premises would have been repaired long before the end of the nine-year lease,
this was a case in which the plaintiffs had suffered no physical loss, but were
claiming for a pure economic loss. This argument, however, seems to me again to
involve transplanting some of the statements from the judgment in the Rust
case and applying them to wholly different circumstances. The plaintiffs,
unlike Mr Rust in respect of heading (B), suffered from physical damage to
their building, which was an income-producing asset. The fact that the cost of
repairs to the building was covered by insurance is neither here nor there. The
loss of rent arising out of the damage to the building was consequential upon
that damage: it was not pure economic loss.
Finally, Mr
Briden suggested that, although the defendant could reasonably be expected to
foresee that the showroom was being put to commercial use and that accordingly
he might have to compensate the tenant for loss of profits whose computation
would include any rent which the tenant might have to pay during the period of
repair, the defendant could not have been expected to foresee the effects of
clause 6(3), this being an unusual clause in a lease. Therefore, he said, the
loss to the plaintiffs lay beyond the limits of reasonable
this suggestion falls foul of the principle stated by Lord Reid in Hughes
v Lord Advocate [1963] AC 837, at p845, that a negligent defendant ‘can
only escape liability if the damage can be regarded as differing in kind from
what was foreseeable’. Thus, it is clear that the defendant could not be
expected to foresee the precise terms of the lease, but he could reasonably be
expected to foresee that his negligence would cause physical damage and
consequential financial loss to the owner or tenant of the premises. That was
enough, in my judgment, to make him liable in damages to whichever of those
parties, under the contractual arrangements between them, in fact suffered from
the particular loss for which damages are claimed.
For these
reasons, which are broadly in line with those of the learned recorder, I would
dismiss this appeal.
KENNEDY and PARKER LJ agreed and did not add anything.
Appeal
dismissed with costs. Application for leave to appeal to the House of Lords
refused.
