The common law rule in England and Wales is that the measure of damages for breach of a repairing covenant is the cost of putting the premises into the requisite state of repair. However, section 18(1) of the Landlord and Tenant Act 1927 sets a statutory ceiling on any claim for damages.
Section 18 limits a landlord’s claim to the amount by which the value of its reversion is diminished by reason of the disrepair, as well as prohibiting it from recovering damages for terminal dilapidations if it can be shown that the premises are to be demolished or structurally altered in such a way as to render the repairs useless. Nonetheless, there is nothing to prevent landlords from reserving the right to undertake any requisite repairs themselves, while the lease is on foot, and to recover the costs incurred as a result as a “debt”: Jervis v Harris [1996] Ch 195.
Grove Investments Ltd v Cape Building Products Ltd [2014] CSIH 43 is an interesting decision of the Inner House of the Scottish Court of Session. It concerned a terminal dilapidations claim for cash in lieu of work for more than £10m. The tenant had covenanted with the landlord to pay “the total value of the schedule of dilapidations prepared by the landlords in respect of the tenants’ obligations” at the end of the lease, and had also agreed that the landlord should be free to spend the amount received as it thought fit.
The landlord accepted that the tenant was entitled to challenge how the value of the dilapidations was ascertained. However, it argued that the sum payable was a debt, which was due regardless of whether the premises were let to another tenant who required very substantial alterations, or were demolished and rebuilt. The tenant argued that it was liable only to pay damages for the loss that the landlord had actually suffered.
The Scottish court thought that the tenant’s covenant was capable of bearing more than one meaning. The landlord’s interpretation of the lease would secure payment of a sum that was arbitrary, and disproportionate, and that was not related to any loss that it had sustained. This did not accord with commercial common sense. In addition, unless there were definite indications to that effect, it could not be presumed that the parties had meant to contract out of the rules that applied under the common law in Scotland. Consequently, the court preferred the tenant’s construction of the lease, which produced a result that was designed to provide true compensation for a breach of contract, rather than a windfall for the landlord.
The decision will interest English lawyers who have been debating whether it is possible to construct an effective Jervis v Harris clause that extends beyond the end of the lease or, in other words, a clause that would enable a landlord to carry out works left undone by a tenant at the end of a lease, and to recover its costs from the tenant as a debt. Grove would not answer the question, even if it had been decided in England, because the landlord was trying to recover cash to spend as it chose. However, the decision does remind us of the need for very clear wording in Jervis v Harris clauses expressly stating that sums spent putting premises back into repair are recoverable as a “debt”, in order to circumvent the limitations imposed by section 18.
Allyson Colby is a property law consultant
