The proper measure of damages for dilapidations is an elusive concept that has prompted a significant degree of argument over the course of this recession. We are all familiar with the types of questions that arise: if L does the work, is it bound to recover the cost; and conversely, if L doesn’t do the work, will it fail to recover the cost?
Dilapidations practitioners are not alone. Similar problems arise in the motor insurance industry, where claims for reimbursement of the alleged cost of repair to damaged cars are rife; as the decision in June of the High Court in Coles v Hetherton [2012] EWHC 1599 (Comm) illustrates. The legal analysis is necessarily different, since the cause of action arises in tort rather than contract, but the ways in which the courts deal with the concept of loss is interesting nevertheless, and may throw light upon some of the problems that arise in dilapidations.
What is the measure of loss?
Let us suppose that Tom, a callow youth, negligently crashes his car into the back of Rosie’s, causing damage which would cost £1,000 to repair. What loss has Rosie suffered? The orthodox answer provided by the authorities is the amount by which the value of Rosie’s car has declined in value as a result of the damage done to it.
The usual way in which the diminution in value of an asset in consequence of physical damage is measured is by reference to the repair cost. This is sometimes described (in negligence and dilapidations judgments alike) as “the normal measure”, “the ordinary rule” or “the prima facie” measure of damages. It is worth emphasising, however, that the repair cost is not the loss: it is merely a convenient starting point for the valuation of the loss.
The loss may or may not be £1,000 in this example. If Rosie’s car was only worth £300 in the first place, then no reasonable person would spend the money on repairs – they would justspend £300 on buying a replacement car. In that instance, therefore, Rosie’s loss would be £300 (plus any consequentials, such as interim hire) rather than £1,000.
The parallel with property in this instance is not exact, because if Rosie is the landlord and Tom is her defaulting tenant, Rosie can hardly discard the property in disrepair and buy another in the context of her dilapidations claim.
Moreover, there is no straightforward parallel where the repairs would cost more than the property is worth. Unlike cars, properties can have negative values, and it is conceivable that Rosie would recover the whole of the cost of repair. By and large, however, the courts in dilapidations cases are coming to apply the same test – what is the diminution in the value of the asset (here the reversion) – without first having to condescend to the statutory ceiling in section 18 of the Landlord and Tenant Act 1927.
The special value car
Now stay with the example above, but assume that Rosie’s car is of special sentimental value to her, and that she does in fact spend £1,000 repairing Tom’s damage. Should she not recover the amount spent?
In Darbishire v Warran [1963] 1 WLR 1067, the claimant owned a 1951 Lea Francis shooting brake, which was damaged in an accident due to the defendant’s negligence. The claimant chose to repair the car at a cost of £192, which exceeded its market value of £85. The Court of Appeal rejected his claim to recover the extra cost beyond the diminution in the value of the car.
The parallel here in the dilapidations sphere is the property that the owner wishes to restore to its former condition, when the market would take a different view. The obvious example is the stately home that the tenant has allowed to fall into disrepair, but where the land is rather more valuable for housing redevelopment, no matter what the condition of the property might be. On the face of it, section 18 might present an insuperable obstacle to the landlord’s recovery of anything more than the diminution in the value of his reversion – but might the common law not provide a stumbling block in any event?
Variations on a theme of repair
Suppose (a) that Rosie decides she has had enough of driving for the time being, and parks her damaged car by the side of the road while she decides what to do. Then suppose she goes to Australia for five years, while the car gently rots.
Or suppose (b) that while the car is parked by the side of the road, it is involved in another accident that writes it off completely. Or suppose (c) that her brother Ned, who is a motor mechanic, carries out the repairs for free. What happens to her loss in these circumstances?
Nothing, is the short answer. In the traffic accident corner of the law (the same principles span the field of negligence), the measure of loss is completely unaffected by what happens after the valuation date – namely the date of damage. The loss remains equal to the diminution in the value of the car that is attributable to Tom’s initial negligence.
Parallels with property disrepair? Well, yes. In scenario (a), if Rosie the landlord chooses not to carry out the repairs, that makes no difference to her loss. Admittedly, the reasons underlying Rosie’s decision not to repair may be indicative of the fact that there is no actual loss – but they cannot affect the loss.
In scenario (b), if vandals break in and wreck Rosie’s property after the valuation date, she will still be entitled to recover the same damages from Tom (save, of course, to the extent that the intrusion is in some way Tom’s fault).
And in scenario (c), Rosie’s good fortune in having in Ned a nice, capable brother is just that – good fortune. Tom remains on the hook for the same damages.
Guy Fetherstonhaugh QC is a barrister at Falcon Chambers
