A recent High Court decision highlights the difference between claims for dilapidations and reinstatement.
At common law, damages for terminal dilapidations are measured by the cost of the repairs that the tenant should have carried out, together with any rent lost during the period needed to effect the repairs. However, section 18 of the Landlord and Tenant Act 1927 caps the amount payable by reference to the diminution in the value of the landlord’s reversion. It also prohibits landlords 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.
Consortium Commercial Developments Ltd v ABB Ltd [2015] EWHC 2128 TCC concerned office premises on a business park in Milton Keynes. The building had been vacant for four years and the tenant left it in disrepair at the end of the lease. The landlord’s claim for dilapidations and reinstatement totalled £315,000, to which the landlord added a further claim for rent and rates during the 12-week period needed for the remedial work.
The trial judge assessed the value of the building in repair at £900,000 – and the value of the building out of repair at £675,000. Therefore, applying section 18, the maximum that the landlord was entitled to recover by way of damages for the dilapidations was £225,000, which represented the diminution in the value of the landlord’s reversion.
However, a covenant to reinstate is not a covenant to keep premises in repair within the meaning of section 18(1) of the Landlord and Tenant Act 1927. Therefore, the statutory cap on damages did not apply to the landlord’s reinstatement claim and the measure of damages for this aspect of the landlord’s claim was governed by the common law.
The common law rule is that, if the landlord has not carried out the work and does not intend to do so, damages are generally measured by the diminution in the value of the landlord’s reversion as well. But, where the landlord reasonably intends to carry out the work required to reinstate the premises, the damages awarded will be based on the cost of the work (and the common law rules do not prevent the landlord from recovering the cost of reinstatement simply because it exceeds the damage to the value of the reversion, if the cost is reasonable).
The trial judge accepted that the landlord intended to re-let the premises in good condition in better market conditions and that it would, in all probability, carry out the work needed to reinstate the premises in due course. He also considered that this would be a reasonable course of action and awarded the landlord damages in the sum of £13,000, as claimed.
What then of the landlord’s claim for loss of rent and rates during the period needed for the remedial work? The judge noted that the market in Milton Keynes was very difficult at the time, even for properties in good condition, and disallowed the landlord’s claim on the ground that the void was not due to the state in which the premises had been left; it was due to market conditions.
Allyson Colby is a property law consultant
