Dilapidations The court found that a tenant’s repairs, though inadequate, had not caused a loss for the landlord. Peter Beckett explains
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Key points |
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● In dilapidation cases, it is necessary to separate out the issues for clarity |
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● Because the property had been sold at what both sides agreed was a good price, the landlord claimant was in a weaker position |
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● The Shortlands method was not applicable |
The judgment in Simmons v Dresden [2004] EWHC 993 (TCC) raises some interesting points about dilapidations claims.
The facts of the case were as follows. The property was 27 John Street and 21 John’s Mews, London WC1. The property at 27 John Street is a middle terrace house, built in the middle of the 18th century and largely reconstructed above first-floor level in the mid-1970s. Behind it is 21 John’s Mews, a mews house built from ground up at the same time. A normal, full repairing lease of both parts was granted on 16 October 1976. It ran for 25 years from that date, expiring therefore on 16 October 2001. The premises had been sublet and, as a result, the tenant recovered possession only in August 2001 ― not long, therefore, before the lease was to expire. The tenant carried out considerable work, but ran out of time.
On 26 March 2002 (some five months after the expiry of the lease), the landlord exchanged contracts to sell the property, with vacant possession, at a price of £2,655,000.
Use a methodical approach
The first point raised is that the court considered the dilapidations claim in a logical sequence, first assessing what might be called the “contractual claim”. This is effectively the claim the landlord would have were there no general principle that his damages have to be limited to the amount of his true loss. Having decided on the amount of the contractual claim, the court then proceeded to consider the landlord’s loss. This is a useful reminder of the need to separate out the issues. It enables the court to understand the reasoning from beginning to end and enables the parties to understand each other clearly.
At contractual claim level, the court decided that the cost of rectifying the breaches of covenant by the tenant which remained after all the work had been done was £73,698, excluding VAT but including builders’ overheads, preliminaries and profit, and supervision fees.
Two elements in the landlord’s claim were rejected. These related to wallpaper and radiators. In the case of the wallpaper, the court decided that the exact wording of the decorating clause did not necessarily require replacement of the vinyl wallpaper. The vinyl wallpaper had been twice emulsioned over; once during the term and once right at the end. The court felt that this was a satisfactory finish having regard to the relevant lease clause and that the tenants could not therefore be charged the cost of replacing the vinyl wallpaper.
The radiators had previously been of the Hudevad variety: flat-fronted, compared with the normal, pressed steel radiators with which they were replaced. The landlord argued that pressed-steel radiators were a cheap and unsatisfactory alternative, but the court did not agree. The pressed-steel radiators were equally efficient in function, and the court found that the difference in appearance was not significant.
The most interesting area of the judgment was the way in which the court dealt with the second part of the landlord’s claim: the assessment of his actual loss. In a psychological sense, the landlord was in some difficulty. He had not carried out any of the work in question. The property had soon been sold at what the valuers on both sides considered a good price, and the buyers themselves did little of the work listed in the schedules.
There was some debate between the valuers as to whether the property should properly be valued as commercial premises as at the date of expiry of the lease (the correct valuation date) or as a residential unit. The court decided that the property fell to be valued on a commercial basis. The valuers agreed that there was some loss in value as a consequence of the breaches of covenant on a commercial basis (although the tenant’s valuer thought there was no loss if the property was to be valued residentially). Nonetheless, the court considered that no loss had been suffered, having regard to the good price the landlord achieved.
Shortlands techniques not applicable
The landlord’s valuer used the valuation techniques appended to the judgment in the Shortlands case. The court considered that these methods were the usual and best methods in most cases, but not in the present case. Where there was loss in value, the best way of going about assessing that loss was to use Shortlands methods, but those methods assumed the very thing that, in this case, they were designed to show ― namely, whether there had been any diminution at all.
Last, the court reminded us in its judgment that it is the landlord to prove his loss, not the tenant to dispute it. Thus, no loss having been proven, the landlord’s claim should be dismissed in its entirety.
Peter Beckett is a director of Beckett & Kay, surveyors of London W1, and a member of the RICS dilapidations working group
