Landlord and tenant — Dilapidations — Repairs — Damages — Appropriate method of repairing roof — Whether premises should be valued for industrial or storage purposes for purposes of section 18(1) of Landlord and Tenant Act 1927 — Whether VAT should be added — Whether section 26 notices validly given — Whether tenant must have genuine intention of requiring new tenancy when serving section 26 notice — Whether section 26 notices valid
The claimant landlord owned land on which were sited some
substantial buildings, including a building known as unit 2A. The defendants
each held a lease of separate parts of the land; the contractual terms of the
leases expired on 24 December 1998. The defendants decided to move and in
November 1997 they acquired alternative accommodation. In January 1998 they
served notices under section 26 of the Landlord and Tenant Act 1954 on the Sun
Life Long Term Business Fund requesting the grant of new tenancies; they did so
in the belief that they would then become entitled to statutory compensation
under section 37 of the 1954 Act. In case the first set of section 26 notices
were served on the wrong party, the defendants served further notices in March
1998 on the actual landlord. The landlord sought damages for terminal
dilapidations in respect of the roof of unit 2A, which consisted of asbestos
tiles. At the trial, the landlord contended that: the appropriate method of
repairing the roof was to overclad with profiled steel sheeting; the valuation
of the premises for the purposes of the cap under section 18(1) of the Landlord
and Tenant Act 1927 should be based on the assumption that the hypothetical
purchaser would let the premises for industrial purposes in the sum of
£338,229; VAT should be added to the damages; the service of a section 26
notice of request by a tenant meant that the tenant must enter into a genuine
dialogue with a view to securing a new tenancy; and that if the section 26
notices were thereby invalid the defendants were not entitled to statutory
compensation under section 37 of the 1954 Act. The defendants argued that: the
roof could be repaired by the application of a roof coating; the section 18(1)
capped loss was £120,000 based on a valuation that assumed a letting for
industrial storage purposes; VAT should not be added to the damages as a
hypothetical purchaser was more likely to be VAT registered; the intention of a
tenant when serving a section 26 notice was irrelevant; and the defendants were
entitled to statutory compensation under section 37 of the 1954 Act.
counterclaim was dismissed. The appropriate method of repairing unit 2A was
that contended for by the claimant’s expert, namely an overcladding of profiled
steel sheeting. The valuation of the capped loss under section 18(1) of the
1927 Act should be on the assumption that the premises would be used for
storage purposes; on that basis the capped loss was less than the cost of the
repairs. VAT should be added as part of the cost of the repair works. The first
set of section 26 notices was validly given to the landlord. However all the
section 26 notices were invalid; it was inherently unlikely that the
legislative intention of the 1954 Act was to allow compensation to outgoing
tenants by misrepresenting their intentions concerning their desire for a new
tenancy. The reference to ‘proposals’ in section 26(3) means ‘genuine
proposals’. The defendants were not entitled to statutory compensation under
section 37.
The following cases are referred to in this report.
Betty’s Cafés Ltd
v Phillips Furnishing Stores Ltd (No. 1) [1959] AC 20; [1958] 2 WLR 513;
[1958] 1 All ER 607; (1958) 171 EG 319, HL; affirming [1957] Ch 67; [1956] 3
WLR 1134; [1957] 1 All ER 1
Cadogan v Morris
[1999] 1 EGLR 59; [1999] 04 EG 155
Cardshops Ltd
v John Lewis Properties Ltd [1983] QB 161; [1982] 3 WLR 803; [1982] 3
All ER 746; (1982) 45 P&CR 197; [1982] 2 EGLR 53; [1982] EGD 305; 263 EG
791, CA
Crown Estate Commissioners
v Town Investments Ltd (National Westminster Bank plc, third party)
[1992] 1 EGLR 61; [1992] 08 EG 111
Keats v Graham [1960] 1 WLR
30; [1959] 3 All ER 919, CA
Lloyds Bank Ltd
v City of London Corporation [1983] Ch 192; [1982] 3 WLR 1138; [1983] 1
All ER 92; (1983) 45 P & CR 287; [1982] 2 EGLR 69; (1982) 264 EG 1001
Marks (Morris) v
British Waterways Board [1963] 1 WLR 1008; [1963] 3 All ER 28, CA
Nittan (UK) Ltd
v Solent Steel Fabrication Ltd [1981] 1 Lloyd’s Rep 633, CA
Railtrack plc
v Gojra [1998] 1 EGLR 63; [1998] 08 EG 158, CA
Rous v Mitchell
[1991] 1 WLR 469; [1991] 1 All ER 676; sub nom Stradbroke (Earl of) v Mitchell [1991] 1 EGLR
1; [1991] 03 EG 128 & 04 EG 132
Salisbury
(Marquess of) v Gilmore [1942] 2 KB 38
Sidney Bolsom
Investment Trust Ltd v Karmios (E) & Co (London) Ltd [1956] 1 QB
529; [1956] 2 WLR 625; [1956] 1 All ER 536, CA
Smiley v Townshend
[1950] 2 KB 311; [1950] 1 All ER 530; [1950] EGD 139; (1950) 155 EG 110, CA
Yamaha-Kemble
Music (UK) Ltd v ARC Properties Ltd [1990] 1 EGLR 261
This was a hearing of a claim by the claimant, Sun Life Assurance
plc, for damages for dilapidations against the defendants, Racal Tracs Ltd and
Racal Properties Ltd, and a counterclaim by the defendants to statutory
compensation under the Landlord and Tenant Act 1954.
Mark Wonnacott (instructed by Dibb Lupton Alsop) appeared for the
claimant; Malcolm Sheehan (instructed by the solicitor to Racal Tracs Ltd)
represented the defendants.
Giving judgment, MR
RECORDER BLACK said: The claimant (hereafter referred to as Sun
Life) has, at all material times, been the freehold owner of land at 88 Bushey
Road, Raynes Park, London SW20. On the land are four substantial buildings.
These are helpfully shown on a plan marked ‘A’ annexed to the witness statement
of Phillip Michael Shalless, a chartered surveyor currently employed as the
portfolio fund manager for the Long-term Business Fund of Sun Life Assurance
Society plc. The land is edged red on the plan. The buildings comprise
(travelling up the plan): Apex House; Engineering Works (hereafter referred to
as unit 2A); Warehouse (hereafter referred to as unit 1); Engineering Works
(hereafter referred to as unit 2B) and Racecourse Technical Services. Somewhat
confusingly, some of the documents refer to unit 1 as unit 3 or to all three
buildings as units 2, 3 and 4.
Apex House has been, at all material times, and remains, occupied
by Racal Avionics Ltd. Racal Avionics Ltd is a subsidiary of Racal Electronics
plc and specialises in the manufacture and development of equipment for the
defence aviation industry. As to units 1, 2A and 2B, the first lease (in
respect of unit 1) was executed by Sun Life and United Yeast Co Ltd and
commenced on 1 March 1961. That lease was assigned to the first defendant, which
was then called Decca Navigator Co Ltd, in October 1978, and which changed its
name to Racal-Decca Marine Navigation Ltd in 1993. The company subsequently
changed its name again to Racal Tracs Ltd on 23 April 1998. I gave permission
during the course of the hearing for the title of the action to be amended
accordingly.
The first lease contained the following covenants:
2(6) Well and substantially to repair and at all times during the
continuance of the term hereby granted to keep in good and substantial repair
the demised premises and all sewers drains fences and walls thereof and also
all other buildings and erections which at any time during the said term may be
upon any part of the demised premises.
2(7) In every fifth year of the said term computed from the year
one thousand nine hundred and sixty nine the year of the grant of this lease
and in the last year thereof howsoever determined in a good and workmanlike
manner to paint with two coats at least of good quality paint grain varnish and
colour all the external parts usually painted grained varnished and coloured of
the building and erections for the time being upon the demises premises and in
like manner once in every seventh year of the said term computed as aforesaid
and in the last year thereof howsoever determined to paint colour grain paper
varnish whitewash and distemper or procure to be painted coloured grained
papered varnished whitewashed and distempered all the inside of the buildings
and erections for the time being upon the demised premises where usually so do.
2(17) To pay all expenses (including solicitors’ costs and
surveyors’ fees) incurred by the Lessors of an incidental to the preparation
and service of a notice under Section 146 of the Law of Property Act 1925
notwithstanding that forfeiture is avoided otherwise than by relief granted by
the Court.
The second lease (in respect of units 2A and 2B) was executed by
Sun Life and the second defendant, Racal Properties Ltd, and commenced on 10
December 1984. Both leases expired on 24 December 1998.
The second lease contained the following covenants:
2(3) At all times during the said term well and substantially to
repair and maintain and also when necessary to rebuild reconstruct and replace
all buildings now or hereafter forming part of the demised premises and also
the Landlord’s fixtures thereon and all boundary walls forming part of the
demised premises and all pipes sewers drains and cables in or under the demised
premises (including the air conditioning system if any).
2(4) To the reasonable satisfaction of the Surveyor for the time
being of the Landlord to remove all rust and to paint clean render and
otherwise treat the exterior of the demised premises and any additions thereto
with suitable materials of good quality in the year 1987 and at least once in
every period of three years during the said term and in the last year thereof
(howsoever determined) and also to paint with two coats of good quality paint
all the wood metal and other parts normally painted of the interior of the said
building in the year 1989 and at least once in every period of five years
during the said term and in the last year thereof (howsoever determined) and
after every such painting to decorate wash stop whiten colour or suitably treat
all such parts as have previously been so dealt with.
(15)(a) To pay all costs and expenses incurred by the Landlord to
the preparation and service of any notice under Section 146 of the Law of
Property Act 1925 or incurred in or in contemplation of proceedings under
Section 146 and 147 of that Act or any statutory modification or re-enactment
thereof notwithstanding in any such case that forfeiture may be avoided
otherwise than by relief granted by the Court.
(15)(b) To pay all costs and expenses incurred by the Landlord
incidental to the preparation and service of any Notice or Schedule relating to
a Schedule of Dilapidations (whether or not the same is served during or after
the determination of the said term howsoever the same may be determined) but
relating in all cases to dilapidations which accrued prior to the expiration or
sooner determination of the term.
It was the policy within the Racal Group that the majority of
leases for properties occupied by Racal Electronics plc and its subsidiary
companies were executed by Racal Properties Ltd. However, the first lease in
respect of unit 1 was assigned to Racal-Decca Marine Navigation Ltd
(Racal-Decca) by the original lessees, United Yeast Co Ltd. This was intended
to have been assigned to Racal Properties Ltd, but the assignment was never
finalised. Racal-Decca therefore remained a party to the lease, although Racal
Properties was in fact responsible for all decisions relating to the property.
I will, therefore, refer in this judgment to the defendants collectively as
‘Racal’ and, where it is necessary to distinguish between them and Racal
Avionics Ltd, I will refer to the latter as Avionics.
Racecourse Technical Services is part of the Tote and its building
was somewhat smaller than the others. It has now been vacated by it.
Adjacent to Sun Life’s land is an L-shaped site edged blue on the
plan (86 Bushey Road). It was owned by Nurdin & Peacock plc (which had been
taken over by Booker plc). I will refer to it as the N&P site,
Finally, 80 Bushey Road is shown edged green on the plan. The site
is, and was at all material times, owned by Sun Life.
Issues
The claim is for terminal dilapidations, but, in addition to
questions of valuation (which are themselves somewhat complicated in this case
by the entry into the market for this type of property of a new type of
purchaser), there arises a point of law on the construction of section 26 of
the Landlord and Tenant Act 1954 (the 1954 Act) that apparently has not fallen
to be decided before and Mr Mark Wonnacott, for the claimant, informs me, has
been the subject of some debate and a search for a suitable case within which
to raise it.
It is right that at the outset of this judgment I should pay
tribute to the care and thoroughness of counsel with which they have narrowed
the issues and delivered their submissions. Likewise, I should like to thank
the four expert surveyors, from whom I heard evidence, for their
professionalism in ensuring that it was only necessary to consider those items
dependent on my findings as to matters of principle. A central issue in the
case was the ‘intention’ of Racal when applying for a new tenancy. The human
personification of Racal for this purpose was Mr Paul Graham Wooldridge, the
property director of Racal Properties Ltd. I made it clear during the course of
argument, and I repeat it here, that if, and in so far as I understand it to be
alleged, Racal did not hold a genuine intention to occupy the premises when
applying for the new tenancy, the allegation involves no personal imputation
against Mr Wooldridge, who acted with absolute propriety in making an
application on behalf of Racal in accordance with his understanding of the
appropriate law and practice.
The issues for determination are as follows:
1. The nature and cost of repair necessary in respect of the roof
of unit 2A, for the purposes of calculating damages for Racal’s admitted breach
of covenant to repair.
2. The diminution in value caused by the breach of covenant for the
purposes of calculating the cap on the damages imposed by section 18(1) of the
Landlord and Tenant Act 1927 (the 1927 Act). This involves a number of
sub-issues:
(a) whether the premises fall to be valued on the basis that the
hypothetical or notional (both adjectives seem to have been used interchangeably)
purchaser is purchasing to lease out for industrial purposes (the industrial
basis) or to a self-storage company (the storage basis);
(b) whether a purchaser would have taken account of any additional
void period, because of the disrepair, on the assumption of a reletting for
industrial purposes;
(c) whether VAT should be included as part of the cost of the
works.
3. Whether notices issued by Racal under section 26 of the 1954 Act
on 9 January 1998 addressed to Sun Life Long-term Business Fund (the first
notices) were valid.
4. Whether notices issued by Racal under section 26 of the 1954 Act
on 11 March 1999 (the second notices) addressed to Sun Life were valid.
5. The quantum of any compensation that may be payable to Racal
under section 3 of the 1954 Act.
6. Whether the counterclaim has been brought prematurely.
Facts
In Mr Wooldridge’s first witness statement it was said that, when
based at the Bushey Road site, Avionics undertook manufacturing, research and
development, and had a large amount of heavy and complex machinery at the site.
During Avionics’ occupation Mr Christopher Penn was latterly its sites and
services manager. He described the premises as a ‘climate-controlled area’.
This accorded with the description in clause 2(8) of the second lease of ‘light
industrial buildings…with ancillary offices and storage for the purposes of
the…business as designers and manufacturers of electronic equipment’. The
character of the buildings was thus somewhat more than that of an industrial
shed that was not required to be totally watertight. Mr Penn himself oversaw
treatment of the roof of unit 2A in the summer of 1995, with the application of
a nylon membrane and black bitumen in a process known as ‘tunerising’. This was
to repair an earlier application in the 1960s. While Mr Penn was satisfied with
the
relating to it. It is agreed between the building surveying experts that, by
December 1998, the roof of unit 2A was once again in disrepair.
By 1995 it had become clear to Racal that there was not enough
space at the Bushey Road site to cater for the long-term accommodation needs of
Avionics, due to its expansion plans. Racal therefore began to consider options
to increase the accommodation on the site. From approximately May 1995 onwards,
Racal was in discussions with Racecourse Technical Services. Racal understood
that it wished to move out of the premises and therefore entered into
negotiations to take over the lease of the property to provide Avionics with
more space. Discussions continued until October 1996, when Racecourse Technical
Services indicated that it would be remaining in the property. Racal therefore
found itself having to look at other options to create more space.
This evidence does not sit entirely consistently with a letter from
chartered surveyor Main Allen, acting on behalf of Racal, to Sun Life dated 9
January 1996. It suggested that Racal had conducted an internal review and
would almost certainly vacate units 1, 2A and 2B in December 1998 on expiry of
the leases. On the other hand, Racal would retain Apex House. It was suggested
that this would make it virtually impossible for Sun Life to redevelop the
site, and, therefore, it would be in both parties’ interests for Racal to
purchase the site.
Mr Wooldridge denied that there had been any internal review. He
agreed in cross-examination that it was ‘barmy and dishonest’. He rang Mr Main
and asked why he said what he did, but he could not really explain. I find that
the letter was not written on Mr Wooldridge’s authority or instruction and did
not represent Racal’s true position. It was an independent, naive and
transparent negotiating ploy and was immediately perceived as such by Sun
Life’s agent, Conrad Ritblat, as is evident from its letter to Sun Life dated
17 January 1996.
On 15 July 1996 Sun Life wrote to St Quintin, the managing agent
for the site, indicating that it was its intention to obtain vacant possession.
In about October 1996 Mr Wooldridge became aware that the N&P
site might be put up for sale. He made some inquiries about the property and
considered that this could be a good opportunity to provide some additional
space very close to the existing Bushey Road site. The N&P site consisted of
a large main building, containing mainly office space, together with a large
warehouse building at the rear of the site.
At the same time, Sun Life was also interested in the N&P site,
and it is apparent from its letter to Booker plc (the site owner) dated 29 November
1996 that it was proposing an outright purchase or a joint venture. It is also
apparent that Sun Life knew that Booker was in discussion with Racal.
On 14 January 1997 Sun Life wrote to Racal, subject to contract,
indicating that Sun Life would resist any statutory renewal of the leases to
Units 1, 2A and 21B on the grounds of redevelopment. Sun Life also suggested
taking back the Apex building.
It is obvious that Racal and Sun Life were now involved in
commercial manoeuvring. Racal was considering securing more space by the
acquisition of the N&P site and, irrespective of units 1, 2A and 2B, had a
substantial unexpired residue of the lease of Apex House that could be used as
a negotiating tool with Sun Life. If Racal could obtain the N&P site it
could give up the leases of units 1, 2A and 2B and still carry on a ‘single
site’ operation with Apex House.
Sun Life, on the other hand, was able to prevent Racal from
continuing in occupation of units 1, 2A and 2B after December 1998 and so could
isolate Apex House. If Sun Life were able to obtain possession of Apex House
and the N&P site, it would have a very large site for redevelopment.
Mr Wooldridge retained Drivers Jonas, a firm of chartered surveyors
and real estate consultants, to investigate the potential value of the N&P
site and provide him with their opinions on value. On 11 March 1997 Racal put
forward an offer to purchase the N&P site for £4.1m.
On 8 and 14 May 1997 Booker wrote to Sun Life seeking an offer for
the N&P site in the region of £5.7m. This was not attractive to Sun Life.
On 9 September 1997 Avionics held a ‘management executive team
meeting’ (METM), which Mr Palmer, Avionics’ financial director, stated
apologetically was 1980s business jargon for a board meeting at which people
other than directors attended and for which formal minutes were unnecessary. I
will call it a board meeting. The minutes disclose that, on the basis that Sun
Life would not renew the leases and having regard to plans to close other
sites, the N&P site would exactly replace the space that Avionics would
vacate over the next two years.
On 23 September 1997 Mr Wooldridge made a presentation to Avionics’
board and to two directors of Racal Electronics plc, the parent company. His
PowerPoint slides have been printed out and form part of the documents. It is
significant that he balanced Racal’s obligations to pay for dilapidations with
its right to compensation under the Landlord and Tenant Act. His conclusions
favoured the acquisition of the N&P site, which (albeit at greater cost)
provided secure long-term Racal-owned premises and better accommodation on a
single site. His presentation was followed by a presentation by Avionics’
financial personnel.
Mr Palmer gave me an account of the meeting. He said that all
options were discussed. Avionics’ managing director, Mr Miller, wanted to stay
put. His primary concern was production; he did not like the disruption and
could not understand why Racal was willing to spend so much money. His views
did not prevail, and the outcome of the meeting was that the main board
directors gave permission to proceed with the purchase of the N&P site
within certain limits.
The purchase was handled by Mr Wooldridge and Avionics was not
involved.
I do not know whether it was before or after the meeting, but, at
11am, Mr Wooldridge spoke to Mr Thomas of Sun Life. Mr Thomas said that Sun
Life wanted to redevelop the units when the leases ended. Mr Wooldridge asked
for an open letter confirming Sun Life’s intention. Mr Thomas also said that
Sun Life felt very strongly that Sun Life had failed to secure the N&P site
and that Racal had purchased it. Mr Wooldridge refused to be drawn. There was
also a reference to compensation. It is clear that both parties were still
circling each other.
On 10 October 1997 Mr Wooldridge spoke to Mr Miller. I have Mr
Miller’s note of the conversation. Mr Miller was not called as a witness. The
note records that Mr Wooldridge expected to exchange contracts on the N&P
site on 21 October 1997 with completion by 22 December 1997. The note says that
he also reported that Sun Life had not provided an unconditional letter:
regarding the buildings 2, 3, & 4 notice with no
dilapidations.
If not received at all PW will raise a section 26 notice to SL who
have two months to reply…
Mr Woodridge said that if Sun Life had given him a letter
unconditionally informing him that it would allow Racal to vacate without any
claim for dilapidations, he would not have advised Racal to serve a section 26
notice. As I understand his position, he was being informed that Sun Life
wanted to redevelop the site in without prejudice/subject to contract
discussions, but Sun Life would not confirm that intention in open
correspondence. I do not think that Racal suggest that this was otherwise than
a perfectly legitimate stance; after all, Sun Life was not yet sure whether it
had the N&P site and could redevelop the whole site. If, however, Sun Life
was willing to give the confirmation sought, it would effectively amount to a
waiver of its claim for dilapidations because the necessary repairs would be
superseded by the redevelopment works.
I suggested to Mr Wooldridge that the note might be construed as
saying that the section 26 notice would only be used as a counter-balance to
the claim for dilapidations. Mr Wooldridge did not accept this, he said that
that note was not accurate either as to his advice or as to his discussion on
23 September 1997 with Mr Thomas. He said that at the time of serving the
notices, Racal would have been pleased to have retained the properties at the
proposed rents and it was not until
did not want the units.
Mr Wooldridge’s evidence that Racal might still be interested in
renewing the leases is to some extent borne out by the final paragraph of the
note:
Whatever the SL situation we are still proceeding with the
purchase of N&P site.
There was some cross-examination about who was responsible for the
confidentiality provisions in the purchase documents for the N&P site. I do
not regard this as of any relevance.
On 13 November 1997 contracts were exchanged. Completion was
deferred to 1 April 1998. Mr Wooldridge explained that this was dictated by the
incidence of Racal’s financial year-end.
In about December 1997 Mr Shalless succeeded Mr Thomas at Sun Life.
One of the first things he did was, on 8 December 1997, to speak to Giles
Scott, a surveyor employed by Booker, to find out if the N&P site was yet
sold or under offer. Mr Scott informed him that the site had been sold, but he
could not give him any further information as the agreement contained a
confidentiality clause.
According to Mr Wooldridge in cross-examination, Racal went into
occupation of the N&P site on 4 December 1997.
On 9 January 1998 Racal served two tenant’s requests for new
tenancy of business premises notices under section 26 of the 1954 Act. One was
in respect of units 2A and 2B and the other in respect of unit 3 (that is unit
1). They were both addressed to ‘Sun Life Long-term Business Fund’.
In his first witness statement, Mr Wooldridge said:
There were several accommodation options open to us, and our plans
would be determined by whether the Claimant was prepared to grant a new tenancy
of the Bushey Road site after December 1998. Racal Avionics required both
office and warehouse accommodation. If the Claimant would not grant a new
tenancy of the Bushey Road site we intended to occupy both the office building
and the warehouse building on the N&P site. However, this would cost Racal
a substantial amount in refurbishment costs of the warehouse building. One of
the alternative options could have been for Racal Avionics to continue
occupation of the warehousing at the Bushey Road site, and also utilise the
office accommodation at the N&P site. We would then have sold the warehouse
building at the rear of the N&P site. This option would have saved Racal a
considerable cost.
In his second witness statement he said:
We intended to move our Feltham site to the N&P site, but
Racal Avionics had an additional building at Burlington Road, and we were
considering whether to also move this location into the N&P site at this
stage. We were also unsure what our plans would be for the warehouse building
at the rear of the N&P site. If, as indicated, Sun Life were going to
redevelop 88 Bushey Road and refuse to renew our leases after expiry in
December 1998, we could relocate into the N&P warehouse building. However,
if Sun Life were prepared to consider renewing our leases for 88 Bushey Road,
an option open to us was to remain in Units 2, 3 and 4 and sell the N&P
warehouse building, thereby saving the considerable costs of refurbishment.
This last option does not appear to have been discussed at or since
the Avionics board meeting on 23 September 1997. Mr Palmer only speaks of it as
a theoretical possibility. He seeks to suggest that it was not possible to
consider it because Sun Life was saying that it would not renew the leases.
However, I am satisfied that Racal knew that the reason that Sun Life was
unwilling to renew the leases was because it hoped to redevelop the units with
the N&P site. Racal knew in November 1997 that that would not be possible.
Accordingly, it seems to me that if Racal really wished to retain the units in
addition to the N&P site, it could have informed Sun Life that it had
purchased the N&P site. This would of course have meant that Racal could
not claim any compensation and would remain liable for breach of covenant to
repair.
The evidence also appears somewhat inconsistent with a letter dated
28 August 1998 from Mr Casson, Racal’s principal property solicitor, to Sun
Life’s solicitor, Dibb Lupton Alsop (DLA). In that letter, Mr Casson stated
that ‘when it was clear that the adjoining site had been secured then our
client withdrew its request for a new tenancy’. In my judgment, the clear
implication of the letter is that the N&P site was an alternative to
renewal of the leases. Unfortunately, Mr Casson got his sequence of events
wrong, and, in fact, Racal had secured the N&P site before making its
request for new tenancies. Mr Wooldridge accepted in cross-examination that Mr
Casson would be acting on instructions (in the legal sense) from him.
I have no doubt that, in January 1999, had Racal in some way been
constrained to have taken renewal of the leases, they would probably have
utilised both sites in the manner suggested by Mr Wooldridge. I do not,
however, consider that this was their intention. It seems plain to me from the
contemporaneous documentation that a decision had been made in September 1997
to vacate units 1, 2A and 2B and to relocate into the N&P site if that site
could be obtained on satisfactory terms. It clearly was obtained on
satisfactory terms before the section 26 notices were served in January 1998.
The finding in the preceding paragraph does not mean that Racal
acted in bad faith. I accept that it believed, whether or not it genuinely
wanted to renew the leases, that it was entitled to statutory compensation
because it fulfilled the statutory criteria and the manner in which the payment
of that compensation was to be triggered was by service of the section 26
notices.
From a letter written by Mr Shalless to DLA on 29 January 1998, it
seems that, while Booker was telling him that the N&P site had been sold to
Racal, Racal was denying it. In cross-examination, he said that he thought that
Racal had bought the site, but he did not know on what basis, whether the sale
was conditional or whether any of the conditions had been met. His manuscript
note of his conversation with Mr Scott, of Booker, endorsed on a letter to
Booker dated 20 May 1997, was then put to him. The note says: ‘Sold
unconditional to Racal not yet completed’. Without more, I should have been
inclined to hold that Mr Shalless was under no illusion about the purchase of
the site by Racal as at 20 January. However, on 26 February 1998 (the date
being in the bottom left-hand corner of the document), Mr Shalless reported to
Sun Life’s board that there was considerable uncertainty over the current
status of the N&P site. He had caused a search to be undertaken and no
change in ownership was disclosed. He said that acquisition of the site was
fundamental to Sun Life’s redevelopment plans and recommended that, if it had
been sold, discussion should be held with the purchaser. On 18 March 1998 he
was authorised to negotiate with Booker for the purchase of the N&P site,
subject to appropriate planning permissions being obtained, for a purchase
price up to £3.5m. It therefore seems to me that, in the period January to
March 1998, Mr Shalless was genuinely confused as to whether Racal had
succeeded in securing the N&P site.
In January 1998 Racal began the procurement process for the works
necessary to convert the N&P site to their use. I have not been told when
the contracts were let, but Mr Wooldridge said that phase one of the works
commenced in March 1998.
There followed a meeting between Mr Shalless and Mr Wooldridge on 4
March 1998. In his witness statement, Mr Shalless gave the following account:
On that day I went to the property and signed in at Racal’s Apex
House reception at 10am, Apex House being Racal’s office block within the
property. We walked round the premises occupied by Racal, both Apex House and
the premises the subject of these proceedings, as I had not seen them
internally before. I was quite open with Mr Wooldridge and discussed with him
not only Sun Life’s thinking as to the future of the property but also Racal’s
future property requirements. The main points discussed are set out in my
letter to Mr Wooldridge dated 23 April 1998. However I would emphasise that I
made it clear Sun Life would only consider redeveloping the property if it
could acquire the freehold of the Booker Site. It is interesting that at no
point during our meeting did Mr Wooldridge inform me Racal were actively
attempting to acquire the Booker Site and, according to Mr Scott, had got to
the stage in the negotiations by 4 March 1998 that it was at least under offer
to them and possibly under contract to them. Mr Wooldridge wrote to me on 24 April.
In his letter he makes reference to Sun Life’s intention to redevelop ‘possibly
as a car showroom whether or not you were successful in acquiring the adjacent
Booker Site’. This is not correct. I mentioned to him in passing that there had
been an
level and was well below the level of the A3 it was not a suitable site.
Certainly Sun Life had no ‘intention’.
In his first witness statement, Mr Wooldridge said:
Indeed, I had a meeting with Philip Shalless of the Claimant at
the Bushey Road site on 4 March 1998 when he confirmed again that their
intention was to redevelop Bushey Road, possibly as a car showroom,
irrespective of whether they purchased the N&P site. The Claimant had
indicated to me as early as 23 September 1997 that they felt they had been
unsuccessful in attempting to purchase the N&P site.
For reasons already stated, I am satisfied that Mr Shalless’
evidence as to Sun Life’s uncertainty about its plans in March 1998 is likely
to be accurate.
On the same day, 4 March 1998, DLA wrote to Mr Casson pointing out
that it considered the section 26 notices invalid because they had not been
addressed to Sun Life Assurance Society plc, the landlord named in the leases.
Without prejudice to that contention, they served counternotices under
subsection 26(6) of the 1954 Act opposing the grant of new tenancy on the
ground set out in section 30(1)(f)
of the 1954 Act: ‘on the termination of the current tenancy the landlord
intends to demolish or reconstruct the premises comprised in the holding or a
substantial part of those premises or to carry out substantial work of
construction on the holding or part thereof and that he could not reasonably do
so without obtaining possession of the holding’.
Without prejudice to its contention that the first notices were
valid, Racal served a second set of notices dated 11 March 1998 addressed to
Sun Life Assurance Society plc.
A Racal internal memorandum dated 19 March 1998 indicated that work
on the N&P site was progressing well.
On 26 March 1998 DLA served a second set of counternotices on
behalf of Sun Life Assurance Society plc.
On 16 April 1998 Mr Casson wrote to DLA stating that Racal would be
vacating the premises and seeking compensation under section 37 of the 1954
Act.
On 23 April 1998 Mr Shalless wrote to Mr Wooldridge stating that
since Racal had confirmed in recent discussions that it had purchased the
N&P site, redevelopment of the units in isolation was not viable, and
offering to renew the leases. Mr Wooldridge replied on 24 April 1998 that
Racal’s proposals were now too far advanced to reconsider reoccupation after
December. These letters were ‘Subject to Contract’, but, on 9 June 1998, DLA
formally withdrew the grounds of opposition to renewal in the counternotices.
Avionics’ management was attracted by the possibility of not having
to move, as appears from the minutes of a board meeting dated 18 June 1998.
Their views do seem to have prevailed, and by 27 July 1998 Sun Life was aware
that Racal would be vacating the premises, as on that date it retained Mr R
Cattaneo as its agent to locate a new tenant. It was agreed by each party’s
expert valuation surveyor that Mr Cattaneo is a highly respected and competent
commercial agent operating in the Kingston area.
His comprehensive advice to Mr Shalless on 20 August 1998 was that
the units should be marketed for warehouse or industrial usage at £4.50 per sq
ft.
The premises, however, attracted the attention of two self-storage
companies. Self-storage is a new business imported from the United States. I
was provided with an article about the business from Estates Gazette for
23 October 1999. The concept is to provide short-term storage principally for
household furniture and business documents. It has proved a business of
enormous potential in the USA, where there are approximately 2,000 centres.
Inevitably, there have been casualties among the smaller operators. In the UK
there are about 300 centres. There is apparently currently much activity in the
market causing a certain amount of consolidation, but a great deal of
investment has taken place, particularly from US realty investors. The evidence
before me indicates that at the end of 1998 and the beginning of 1999 there
were four major UK operators: Acorn (now Access); Safestore; Big Yellow; and
Abbey (now Mentmore Abbey).
Storage operators look for large premises, close to residential
areas, with good road access and high visibility. While the premises in the
present case might not be as visible as might be desired, Mr Moss (the
claimant’s expert valuation surveyor) said that they fitted the bill in all
other respects. The significance is that self-storage operators are willing to
pay substantially in excess of the market rent on an industrial basis for the
right premises. The economics are very simple; they are able to charge £15-20
per sq ft. The rents they are willing to pay, when capitalised, radically
affect the value of the buildings.
In October 1998 Abbey confirmed a serious interest in the premises.
At the same time, Acorn contacted Mr Cattaneo looking for sites and he sent the
details of Bushey Road. On 27 October 1998 Abbey offered £4.50 per sq ft,
subject to various matters, including the condition of the premises left by
Racal. On 19 November 1998 Acorn also offered £4.50 per sq ft. A bidding war
resulted. On 1 December 1998 Abbey offered £4.75 rising annually over the next
four years to £5.55. On the same day, Acorn offered £290,000 pa, which equated
to £5.68 per sq ft.
On 8 December 1998 DLA served notices on Racal under section 146 of
the Law of Property Act 1925, requiring Racal to remedy the breaches of
covenant to repair and to pay compensation.
On 23 December 1998 Avionics vacated the premises.
It is agreed between the valuation experts in this case that the
relevant date of valuation, for the purposes of calculation of the diminution
in value caused by the dilapidations, is 24 December 1998. I should, however,
summarise the subsequent history concerning the reletting of the premises. In
April 1999 Acorn claimed that due to the state of repair of the premises, it
was obliged to reduce its offer to £235,000 pa. Alternatively, it offered to
pay £290,000 if Sun Life replaced the roof on unit 2A. Acorn subsequently
withdrew its offer altogether.
Mr Shalless said that he knew from Mr Cattaneo that Abbey had said
that it would match any offer made by Acorn. He suggested that Mr Cattaneo
should contact Abbey to see if it would match Acorn’s offer if the letting to
Access did not proceed. This he did, and the result was their agent’s letter to
Mr Cattaneo dated 6 May 1999, which offered a 25-year lease with five-year
reviews, subject to a break for redevelopment at 29 September 2011 (when Apex
House’s lease will expire), at a rent of £290,000. The lease with Abbey was
completed on 21 October 1999.
Issue 1: repairs to the roof of unit
2A
Mr Brown, the claimant’s expert building surveyor, expressed his
view on the issue as follows:
3.3 From an inspection internally, a number of water stains were
noted to the suspended ceiling tiles, indicating the roof had been leaking in
the past.
3.4 In my opinion, the Tenant, under the terms of the Lease,
should have locally attended to roof leaks on a leak-by-leak basis, repairing
any suspect area of tiles, or defects with the rooflights. This would have left
a roof which could have been visually assessed and repaired as appropriate.
3.5 The Defendant chose instead to coat the roof as previously
identified with a low-quality roof treatment in order to rectify the leaks that
were occurring.
3.6 In preparing my Schedule of Dilapidations, I referred to the
lease clause covering repair, which makes reference to ‘well and substantially
repair and maintain.’ (Clause 2(3) of the Lease.)
3.7 The Defendant chose a low-quality, short-term and cheap
treatment to prevent water penetration through a defective roof covering still
positioned beneath. In my opinion, this form of treatment does not fulfill the
repairing obligations stated under the previously highlighted clause.
3.8 In my opinion, as a result of the Defendant’s previous action,
there are now only two options available to repair this roof covering. The
first would be to strip the original covering and renew it, the second and
cheaper option would be to oversheet the covering with a profiled metal sheet
to encapsulate the roof covering beneath. I chose the latter, more cost-effective
approach for insertion into my Schedule of Dilapidations.
3.9 Mr. Mace’s opinion is that the roof covering, which has
previously been coated by the Defendant, should be re-coated with a similar
treatment in order to comply with the repairing covenants of the Lease.
3.10 I strongly disagree with this approach as, in my opinion, any
incoming Tenant, who was professionally represented by a Building Surveyor,
would not
concealed and which has been coated with such a short-term treatment.
Mr Mace, the expert for Racal, expressed his views in this way:
8.4 The roof covering is currently in reasonable repair with
isolated water leaks. It is my opinion that such a roof covering, with regular
maintenance would have a useful life of some 5 to 10 years.
8.5 Mr Brown contends that the type of coating used is
inappropriate and not capable of repair providing a guarantee of long term
life. Mr Brown therefore has scheduled for the roof to be entirely over clad
with profiled steel sheet at a cost of £60,000.
8.6 I believe that, taking account of the nature, age, and
location of the property that turnerising is a perfectly acceptable form of
repair and therefore the lease obligation on the tenant is to leave this
coating in repair.
The requisite standard of repair is not in dispute between the
parties and is expressed in Dilapidations, The Modern Law and Practice
by Dowding & Reynolds (1995) at para 7-05:
As a general principle, the standard of repair under the general
covenant is such repair as, having regard to the age, character and locality of
the premises, would make them fit for a reasonably minded tenant of the class
who would be likely to take them.
and at para 8-02:
the general principle is that where there are several possible
methods of repair, each of which would comply with the required standard, then
the choice between them is one for the covenanting party to make.
Problems arise where, as here, it is alleged that subsequent
improvements have raised the standard of the premises. The standard remains
that fixed at the date of the lease: see Dowding & Reynolds at p134.
I have already indicated that I do not regard the premises to have
been an industrial shed when let, having regard to the terms of the leases,
even if Racal may have installed climate-control equipment thereafter.
Mr Brown was satisfied with a treatment by the application of a
specialist solvent-based resin coating to the roof of units 1 and 2B, which were
constructed of corrugated asbestos sheeting. The roof of unit 2A was
constructed of asbestos tiles laid like conventional slates. Apparently, he has
been advised that the same treatment cannot be applied to such a roof and that
is why he has opted for over-sheeting. The advice that Mr Brown said he
received was not challenged. Racal’s case, based on Mr Mace’s view, is that
turnerising would work on unit 2A.
Turnerising is also a specialist process, applied by sprayed
bitumen. When applied, it is guaranteed by the contractor. Mr Mace disclosed in
cross-examination that he had only spoken to a specialist contractor on the
telephone. The contractor had said that he would need to see the roof before he
could say with certainty whether it was suitable for treatment. Unfortunately,
Mr Mace did not then ask the contractor to inspect the roof.
I am thus faced with Mr Brown’s recommendation, which it is common
ground will provide an adequate repair, and Mr Mace’s recommendation, which might
produce an adequate repair. There is no evidence before me that it would be
possible to apply Mr Mace’s solution to the roof of unit 2A, it being outside
Mr Mace’s expertise to say whether it is possible.
I am, therefore, left with no alternative but to hold that Mr
Brown’s suggestion that the roof of unit 2A should be entirely overclad with
profiled steel sheet is the appropriate method of repair.
Issue 2(a): industrial basis or
storage
Section 18 of the 1927 Act provides:
(1) Damages for a breach of a covenant or agreement to keep or put
premises in repair during the currency of a lease, or to leave or put premises
in repair at the termination of a lease, whether such covenant or agreement is
expressed or implied, and whether general or specific, shall in no case exceed
the amount (if any) by which the value of the reversion (whether immediate or
not) in the premises is diminished owing to the breach of such covenant or
agreement as aforesaid; and in particular no damage shall be recovered for a
breach of any such covenant or agreement to leave or put premises in repair at
the termination of a lease, if it is shown that the premises, in whatever state
of repair they might be, would at or shortly after the termination of the
tenancy have been or be pulled down, or such structural alterations made
therein as would render valueless the repairs covered by the covenant or
agreement.
The effect of this cap in the present case is dependent on a number
of factors, some of which are agreed and some in dispute. The most significant
difference between the parties turns on the question of whether, at the agreed
valuation date, the notional/hypothetical purchaser would be willing to pay a
price for the premises that recognised their potential use by a self-storage
operator. If the valuation were on the industrial basis, making all the
disputed assumptions in Sun Life’s favour, the capped loss would be £338,229.
On the other hand, if the valuation were on the storage basis, making all the
disputed assumptions in Racal’s favour, the capped loss would be £120,000.
Mr Moss and Mr Hull (Racal’s expert valuation surveyor) reached a
large measure of agreement. Their differences are epitomised in their joint
statement under CPR 35.12(3), dated 8 October 1999:
8.17 The experts have prepared four different valuations which one
or both of them considers to be relevant to the issue. All four valuations are
set out as Appendices to this statement. Where there is a difference between
the valuers, this is highlighted in the second column.
8.2 In summary, Mr Moss values the premises on the assumption that
they would be re-let in their existing specification for industrial/office use.
His first valuation, shown in Appendix 3, is on the assumption that the tenant
has complied with all its lease covenants. The second valuation is set out in
Appendix 4 and reflects the actual state of repair as it exised at the
valuation date.
8.3 Mr Hull values the premises taking account of their potential
for conversion to storage use. His first valuation set out in Appendix 5
assumes covenant compliance. His second valuation in Appendix 6 assumes the
actual state of repair that existed at the valuation date.
8.4 The first main point of dispute is whether it is permissible
to take account of the potential for conversion to storage use.
8.5 If it is permissible to take such potential into account then
the only remaining difference between the parties is the difference in the cost
of works which would have to be undertaken by the landlord under the two repair
scenarios. Both sides are dependant upon their respective building surveying
experts Mr Brown and Mr Mace for the information on cost of works which has
been included in their valuations.
Both valuers agree that weight must be given to the possibility
that the premises would be let to a self-storage operator. In
cross-examination, Mr Moss, on what was, in my judgment, an unscientific but
nevertheless acceptable basis, said that the ‘hope’ would be reflected in a
notional addition to his valuation. He assessed that addition at £250,000
based, as he put it, on 30 years’ experience. If his underlying assumption,
namely that the situation as at 25 December 1998 was so uncertain that the
market would not have valued the premises on the storage basis, is correct, I see
nothing exceptionable with his approach. Valuation is an art, not a science,
and is an educated guess at the likely behaviour of a market.
Mr Hull comes at the question from the opposite direction. He
believed that the storage basis was ‘a safe bet’ (a use of language
emphasising, I think, the point about valuation made in the preceding
paragraph) because, in particular, two offers had already been received from
the leading operators. Like Mr Moss, in cross-examination, he allowed an
arbitrary adjustment (in his case a discount) to reflect the possibility that
the offers would not mature into concluded contracts.
Both valuers agreed that their adjustments would not make any
difference to their calculation of diminution in value because they would go to
the bottom line of each side of the repair/disrepair equation and so cancel
each other out.
Both valuers also agreed that the likely profile of the
hypothetical notional purchaser was either a high net worth individual or a
small investment company. It would not be an institution. The valuation was not
undertaken by either valuer on the basis that the purchaser would be one of the
storage operators. There is no question, in my view, that the
& Valuation Manual (the Red Book). The issue is how the interest
of the storage operators would translate into an element of ‘hope value’ (as
defined at PS4.2.5).
There is some help to be derived from the authorities. The leading
cases were concerned with the words ‘if it is shown that the premises, in
whatever state of repair they might be, would at or shortly after the
termination of the tenancy have been or be pulled down’ in section 18 of the
1927 Act. In Marquis of Salisbury v Gilmore [1942] 2 KB 38 at p45
Lord Greene MR construed the section:
Two more points must be borne in mind in considering the structure
of the sentence. The first is that the point of time in relation to which the
fate of the building is to be considered is that at which the covenant to
deliver up falls to be performed, namely, the termination of the lease. The
other is that the date at which the tenant is to prove the intended fate of the
building is the date at which the action claiming damages for breach of the covenant
is heard which is necessarily subsequent to the termination of the lease. These
considerations appear to me to explain the construction of the sentence. The
words ‘would have been’ are, I think, grammatically correct to express in a
statement in oratio obliqua (‘if it is shown that’) made at a subsequent
date (the date of trial) in relation to what at an earlier date (the
termination of the lease) was a future event which at that date was in
contemplation. The moment before the termination of the tenancy it would be
correct for the tenant to say ‘I say that this house will be pulled down at the
termination of the tenancy.’ If at a date later than the termination of the
tenancy he wishes to describe the future fate of the house regarded from the same
moment of time he would say, if he spoke grammatically, ‘I say that this house
would have been pulled down at the termination of the tenancy.’ What else as a
matter of English could he say? He could not say ‘I say that the house will be
pulled down at the termination of the tenancy’ since the termination of the
tenancy has already taken place, nor could he say ‘I say that this house would
be pulled down at the termination of the tenancy.’ He might have said, if the
sub-section had been so framed, ‘I say that this house was going to be pulled
down at the termination of the tenancy’ and this seems to me to be an accurate
paraphrase of the language used. It is, I think, incorrect to say that the
words ‘would have’ make it necessary to imply a conditional sentence such as
‘if it had not been for the landlords action in claiming damages’ or ‘if it had
not been for some extraneous cause.’ No such implication is in my view
necessary. The remaining words ‘be pulled down’ must, I think, be linked up to
the words ‘would’ and ‘shortly after the termination of the tenancy’ so that
this limb of the sub-section will run ‘if it is shown that the premises would
shortly after the termination of the tenancy be pulled down.’ Here the
draftsman has, I think, to some extent sacrificed grammar to conciseness. But
his difficulty was a real one as he had to deal with an event, namely, pulling
down shortly after the termination of the tenancy which at the relevant time,
namely, the hearing of the action might be past or future and he has apparently
used the words ‘would be’ to meet this difficulty. However this may be, I am of
opinion that if the tenant can show at the trial that at the moment when the
covenant fell to be performed the building was one which was going to be pulled
down at or shortly after the termination of the tenancy he is entitled to the
relief which the sub-section gives.
The case was considered in subsequent cases. In Smiley v Townshend
[1950] 2 KB 311, Denning LJ said at p321:
It is only evidence, albeit strong evidence, in retrospect, of the
future as it appeared at the end of the lease. In Salisbury (Marquess) v
Gilmore it was shown that the Marquess of Salisbury had the intention at
the end of the lease of pulling down the premises; but a few days later he
changed his mind and determined not to pull down the premises. The court said
that the material time was at the end of the lease, and, if at the time of the
end of the lease he had the intention to pull down the premises, it did not
matter that he changed his mind afterwards. The true view is, therefore, that
matters happening subsequently to the end of the lease do not of themselves
affect the damages. The only effect of subsequent demolition is that it shows,
in retrospect, what was the future when the lease came to an end, and thus
throws strong light on the injury to the reversion at that time.
In Keats v Graham [1959] 3 All ER 919, Lord Evershed
MR said at p924F:
Before the learned judge, two other matters of fact were proved.
The first was that in May, 1957, some six weeks after vacation by the
defendants, the plaintiff let the premises again to another tenant for use (on
this occasion), not as a place for stove enamelling, but for the business of
the ‘manufacture of glazing compounds and allied products’. Next it was proved
that in October, 1957, the plaintiff applied again to the London County Council
for permission for development, and received on this occasion a conditional
permission. The permission was to retain, for a limited period, the extension
and to rise the 30, Oldhill Place, premises, including the extension, for
storage and light industrial purposes — the time limit imposed being Dec 1,
1962. It has been debated before us whether these events, occurring after the
termination of the tenancy, were really admissible at all. My own inclination,
based on Salisbury v Gilmore, is that, strictly speaking, they
were not admissible. What the court is required by s118(1) of the Act of 1927
to do is to reach a conclusion of fact: Aye or no, were these premises going to
be pulled down as things were at the date of the termination of the tenancy? No
doubt it may be said that, if some matter of fact is doubtful, later events may
by reflection clarify and explain what had gone on before.
In Crown Estate Commissioners v Town Investments Ltd
(National Westminster Bank plc, Third Party) [1992] 1 EGLR 61*, Mr Recorder
Barry Green QC said in this court at p64B:
The payment for the repairs was a future event. It took place
after expiry of the lease and there is nothing in the agreed statement of facts
to indicate that it was either ‘operative or potential’ at the expiry of the
lease. An example of a future event which might be admissible would be this.
Suppose that in Family Management there had been firm evidence that one
of the shop tenants was in financial difficulty as at the date of expiry and
might well not be able to take up a new lease. If by the date of trial that
potentiality had become an actuality and he had not taken up the new lease then
subsequent events would be admissible as corroboration of the evidence of what
had previously been only a potentiality.
* Editor’s note: Also reported at [1992] 08 EG 111
In my judgment, the limited extent to which I am permitted to look
at events after 24 December 1998 is as corroboration of the strength of the
offers from Abbey and Acorn. Even though Acorn subsequently withdrew, I consider
that they were both serious offers as at the valuation date and would have been
perceived as such by any potential purchaser. He would no doubt argue that
unless and until an agreement were in place there could be no certainty. On the
other hand, I have no doubt whatsoever that Sun Life, as the vendor, would be
arguing (contrary to its position in this action) that the offers were so
strong that the property should be valued on the basis that it was subject to a
lease with one of the storage operators.
Both vendor and purchaser would be bound to move in negotiation,
but I consider that the commercial balance favoured the vendor for the
following reasons:
1. the site was well suited for storage operators and had clearly
been identified as such by two of the leading operators;
2. the two operators were clearly in competition with each other
for the site;
3. self-storage was (and is) a booming business and the valuation
date was at a time of rapid expansion;
4. the economics of self-storage meant that large profits could be
generated from the site at the rents offered;
5. there appeared to be no planning difficulties.
In those circumstances, I prefer Mr Hull’s approach, and hold that
the valuation should be on the storage basis.
Issue 2(b): additional void period
for repairs
The issue does not arise, given my finding on the preceding issue,
since the capped cost would still be lower than the cost of the works, even if
the additional void period were disallowed. However, I will express a view in
case it should become relevant.
The question is whether it is reasonable for a landlord to wait
until he has a tenant before undertaking repairs, or whether he should complete
them before the premises are let. There is no suggestion in the present case
that the cost of the repairs was increased by the delay.
I accept the evidence of Mr Shalless that there were good reasons
for not carrying out the works until a tenant had been secured:
1. the works would be purely speculative and a prudent landlord
would not spend up to £400,000 without some security; and
2. having done the works, a potential tenant might say that he did
not like certain items.
Thus, if it becomes necessary, I hold that there would have been no
failure to mitigate in not undertaking the necessary repairs until a tenant had
been found to take the premises.
Issue 2(c):VAT
The question of whether VAT should be included as part of the cost
of the works turns on the notional VAT position of the hypothetical purchaser.
Sun Life has not exercised the option to tax. So if Sun Life were
to do the works of repair, it would be charged VAT by its contractors, but
would not be able to reclaim the VAT. So far as the hypothetical purchaser is
concerned, Mr Wonnacott drew my attention to a passage on p617 of Dowding
and Reynolds:
The effect of section 18(1) is that VAT will only be recoverable
where it forms part of the damage to the reversion. In the cases already
considered, the court was in effect proceeding on the assumption that the
hypothetical purchaser of the reversion would be in the same position in
relation to VAT as the actual landlord. In theory at least, it may be possible
to show that the particular VAT position of the actual landlord would not be
shared by the hypothetical purchaser of the reversion. If it can be proved that
the hypothetical purchaser of the reversion would be able to reclaim VAT as
input tax, it would seem to follow that the diminution in value of the
reversion would not include an element of VAT. It follows that VAT would not be
recoverable as part of the damages, even though it has been incurred by the
actual landlord. The difficulties of proving such a proposition will, in most
cases, be considerable.
It seems to be common ground that the hypothetical purchaser, as
previously described and agreed between the valuers, would probably not be
VAT-registered. In addition, Mr Malcolm Sheehan accepted in his skeleton
argument that if I were to find that the premises should be valued on the
storage basis, his expert, Mr Hull, agrees that because of the unusual VAT
position of storage operators, the notional purchaser would not elect to charge
VAT.
Given the existing VAT status, the likely status of any potential
purchaser and that I have held that the premises should be valued on the
storage basis, I am bound to conclude that VAT should form part of the cost of
the works.
Issue 3: validity of the first
section 26 notices
The validity of the first notices only becomes important should I
find, first, that the tenant’s intention is a relevant consideration to the
validity of a section 26 notice, and, second, that Racal’s intentions changed
between the dates of the first notices and the second notices (9 January 1998
and 11 March 1998). As to the latter question, I have already found as a matter
of fact that there was no change in intention. I have found that a decision had
been made in September 1997 to vacate units 1, 2A and 2B and to relocate into
the N&P site if that site could be obtained on satisfactory terms and that
it was so obtained before the section 26 notices were served in January 1998. I
will consider the former in relation to the next issue.
The short point is that the first notices were addressed to Sun
Life Long-term Business Fund, which was not the landlord. The Act is quite
specific that the notices have to be addressed to the landlord. Subsection
26(3) provides:
A tenant’s request for a new tenancy shall not have effect unless
it is made by notice in the prescribed form given to the landlord…
Mr Sheehan submitted that, on the authority of Railtrack plc
v Gojra [1998] 1 EGLR 63*, the notices were valid if Sun Life Long-term
Business Fund was an agent for the claimant on 9 January 1998.
* Editor’s note: Also reported at [1998] 08 EG 158
There is no evidence that Sun Life Long-term Business Fund was an
agent for the claimant on 9 January 1998, and I find the Railtrack case
to be distinguishable from the present on the grounds that the case was not
about the formal validity of the notice, but about the validity of service on
an agent.
Mr Wonnacott relied on the case of Yamaha-Kemble Music (UK) Ltd
v ARC Properties Ltd [1990] 1 EGLR 261. I am not sure that that case is
very helpful either. It concerned a notice given by a landlord under section 25
of the 1954 Act, where the landlord described itself in circumstances where the
tenant might be misled. Here, there was no question of misunderstanding, and I
regard the case as one of mere misnomer that may be disregarded by the court:
see Nittan (UK) Ltd v Solent Steel Fabrication Ltd [1981] 1
Lloyd’s Rep 633 at p639 per Brightman LJ. It therefore matters not
whether subsection is mandatory or directory, I consider that the court
can and should read the notices as if they were validly given to the landlord.
Issue 4: intention necessary on
service of section 26 notice
This is a point of statutory construction. Section 26, in so far as
relevant, provides:
(1) A tenant’s request for a new tenancy may be made where the
tenancy under which he holds for the time being (hereinafter referred to as
‘the current tenancy’) is a tenancy granted for a term of years certain
exceeding one year, whether or not continued by section twenty-four of this
Act, or granted for a term of years certain and thereafter from year to year.
…
(3) A tenant’s request for a new tenancy shall not have effect
unless it is made by notice in the prescribed form given to the landlord and
sets out the tenant’s proposals as to the property to be comprised in the new
tenancy (being either the whole or part of the property comprised in the
current tenancy), as to the rent to be payable under the new tenancy and as to
the other terms of the new tenancy.
…
(6) Within two months of the making of a tenant’s request for a
new tenancy the landlord may give notice to the tenant that he will oppose an
application to the court for the grant of a new tenancy, and any such notice
shall state on which of the grounds mentioned in section thirty of this Act the
landlord will oppose the application.
Racal’s submission was simplicity itself; there is no express
statutory requirement specifying any particular state of intention on the part
of the tenant at any stage in the lease-renewal process. Mr Sheehan submitted
that the section makes no requirement of any particular intention on the part
of the tenant; it is merely prescriptive of the steps that a tenant must take
in order to preserve the statutory right to renewal. Mr Wonnacott submitted
that the requirement for the tenant to set out his proposals as to the property
to be comprised in the new tenancy, as to the rent to be payable under the new
tenancy and as to the other terms of the new tenancy, means that the tenant is
required to enter into a genuine dialogue with a view to securing a new
tenancy.
Both counsel directed me to the long title of the Act:
An Act to provide security of tenure for occupying tenants
under certain leases of residential properly at low rents and for occupying
sub-tenants of tenants under such leases; to enable tenants occupying property
for business, professional or certain other purposes to obtain new tenancies in
certain cases; to amend and extend the Landlord and Tenant Act, 1927, the
Leasehold Property (Repairs) Act, 1938, and section eighty-four of the Law of
Property Act, 1925; to confer jurisdiction on the County Court in certain
disputes between landlords and tenants; to make provision for the termination
of tenancies of derelict land; and for purposes connected with the matters
aforesaid.
They and their clients have radically different stances. Mr Sheehan
suggested that the Act confers a right on a business tenant to renew his lease
and that, if a landlord interferes with that right, he is bound to pay
compensation. Section 26 is part of the mechanism whereby the tenant enforces
that right and obtains his compensation. Mr Wonnacott, on the other hand,
emphasised the reference to obtaining a new tenancy. He said the Act is about
enabling the tenant to remain in occupation if certain criteria are satisfied,
and not about providing a windfall payment to a tenant who intends to leave in
any event.
During the course of argument, I mentioned that I thought that it
might be helpful to consult Statutory Interpretation by Francis Bennion,
as I had a recollection of authority affecting the construction of statutes
giving rise to a right of compensation. During the preparation of this
judgment, I have consulted the second ed (1992) and second cumulative
supplement (1995). At p32 of the main work, it stated:
Conferring a right or benefit Where legislation confers
some right or benefit on a person which he would not have at common law, the
conditions laid down as to the accrual of the right or benefit, unless purely
formal, are mandatory. If they are not complied with the right or benefit will
not accrue.
and in the supplement:
It is an abuse or misuse of process, where a condition is imposed
on the securing of a statutory right or benefit by legal proceedings, falsely
to assert that the condition is satisfied.
I suspect that Mr Wonnacott would say that it is an essential
prerequisite that the tenant states his genuine proposals, and the inclusion of
terms in the notice that he knows will be opposed on indisputable grounds, in
order to obtain compensation, is an abuse of process. Mr Sheehan would no doubt
reply that the majority of proposals (genuine or otherwise) ought not to be
regarded as a condition for compensation to the tenant for the disruption of
giving up his tenancy. It may be that this particular debate does no more than
highlight the underlying question of purposive construction, namely whether a
tenant who intends to vacate the premises ought to be compensated at all.
Alternatively, does the literal construction mean that the mere service of the
notice, irrespective of the tenant’s intention, is sufficient to initiate the
machinery that will result in a compensation payment to him.
The 1954 Act certainly does not specify that the compensation is
for disruption, nor is that a necessary implication from the method of
calculation. Section 37 provides:
(1) Where on the making of an application under section 24 of this
Act the court is precluded (whether by subsection (1) or subsection (2) of
section 31 of this Act) from making an order for the grant of a new tenancy by
reason of any of the grounds specified in paragraphs (e), (f) and (g) of subsection (1) of
section 30 of this Act and not of any grounds specified in any other paragraph
of that subsection, or where no other ground is specified in the landlord’s
notice under section 25 of this Act or, as the case may be, under section 26(6)
thereof, than those specified in the said paragraphs (e), (f) and (g) and either no
application under the said section 24 is made or such an application is
withdrawn, then, subject to the provisions of this Act, the tenant shall be
entitled on quitting the holding to recover from the landlord by way of
compensation an amount determined in accordance with the following provisions
of this section.
(2) Subject to subsections (5A) to (5E) of this section the said
amount shall be as follows, that is to say, —
(a) where the conditions specified in the next following
subsection are satisfied it shall be the product of the appropriate multiplier
and twice the rateable value of the holding…
(3) The said conditions are —
agreed to apply in the present case
(4) Where the court is precluded from making an order for the
grant of a new tenancy under this Part of this Act in the circumstances
mentioned in subsection (1) of this section, the court shall on the application
of the tenant certify that fact.
(5) For the purposes of subsection (2) of this section the
rateable value of the holding shall be determined as follows: —
…
and any dispute arising, whether in proceedings before the court
or otherwise, as to the determination for those purposes of the rateable value
of the holding shall be referred to the Commissioners of Inland Revenue for
decision by a valuation officer.
In Sidney Bolsom Investment Trust Ltd v E Karmios &
Co (London) Ltd [1956] 1 QB 529 the tenant mistakenly made a proposal for a
seven-year term when he in fact intended one of 14 years. Denning LJ held at
p539:
Mr Buckee [for the tenant] next said that the request was invalid
because it was made under a mistake. If the proposal on its true construction,
he said, asked for seven years, then it was made by the tenants under a mistake
because they intended to ask for 14 years and not for seven years. The judge
admitted evidence in support of this mistake. He heard the evidence of Mr.
Karmios himself and also of his solicitor’s managing clerk, and held that there
was a mistake in that the request should have asked for 14 years and did not;
and that the request was therefore invalid.
I do not think that that evidence was admissible. This case falls,
to my mind, within the general principle that parole evidence cannot be
admitted to add to, vary, or contract the terms of a written document. Once a
tenant, whatever his inmost state of mind, has to all outward appearances made
a valid request in the prescribed form setting out his proposals, he cannot
thereafter rely on his own misiake to say that it was a nullity or invalid, no
matter how important the mistake was. The validity of the request must be
judged by the true interpretation of it without regard to what happened behind
the scenes. It is a formal document with specific legal consequences and must
be treated as such. If the proposals had ripened into a contract, the mistake
might in some circumstances be a ground for setting the contract aside in
equity, but it would not render the contract a nullity from the beginning, nor
does it render the request invalid.
In my judgment, the case does not help me. It was a case of a
tenant attacking the validity of his own notice that was formally valid. There
was no issue that the tenant did want to renew. The question for the court was
one of unilateral mistake rather than the construction of section 26 and its
requirements. Denning LJ had already found at p539 that the notice complied
with the Act.
Mr Sheehan relied on the dissenting (but not on this point)
judgment of Eveleigh LJ in Cardshops Ltd v John Lewis Properties Ltd
[1983] QB 161* at p170G:
Thus the landlord’s indefeasible right for possession by virtue of
section 30 is encumbered to the extent that section 37 gives the tenant a right
to compensation. This encumbrance (that is the right of the tenant) originally
only arose if the tenant made a claim to a new tenancy, but by the amendment in
1969 it was imposed whether or not the tenant asserted such a claim. If the Act
had been drafted originally to include the amending words it could have said:
‘Where the court is precluded from making an order for the grant of a new
tenancy by reason of any of the grounds specified in paragraphs (e), (f) and (g) of subsection (1) of
section 30 of the Act then subject to the provisions of this Act etc…’ Section
37, as amended, encumbers the landlord’s right to possession under section 30
with an obligation to pay compensation to the tenant no matter what the
tenant’s attitude to a new tenancy is, provided that the landlord’s right
depends on section 30(e), (f)
or (g).
* Editor’s note: Also reported at [1982] 2 EGLR 53; (1982) 263 EG
791
Cardshops was a case in which the landlord of business
premises served a notice on the tenant under section 25(1) of the Landlord and
Tenant Act 1954 terminating the tenancy and stating that it would oppose an
application for a new tenancy on the ground, under section 30(1)(g),
that the landlord intended to occupy the premises for its own business
purposes. The landlord thus intiated the procedure and the wording of section
37 provides an automatic right to compensation where the grounds are those in section
30(e), (f) or (g):
where no other ground is specified in the landlord’s notice under
section 25 of this Act… than those specified in the said paragraphs (e),
(f) and (g) and either
no application under the said section 24 is made or such an application is
withdrawn, then… the tenant shall be entitled on quitting the holding to
recover from the landlord by way of compensation…
Lloyds Bank Ltd v City of London Corporation [1983] 1
Ch 192† was a case on section 26, albeit directed to the discontinuance of
proceedings. In that case, there was no question of the tenant not wanting a
new tenancy; it commenced proceedings. It was the landlord’s opposition to the
new tenancy itself that precipitated the tenant’s change of mind. Templeman LJ
said at p202:
In my judgment, where a landlord serves a counter-notice based on
grounds (e), (f) or (g),
he is asserting a right to inflict loss or damage on the tenant by requiring
the tenant to quit the premises. That counter-notice creates difficulties for
the tenant who cannot know whether the landlord will succeed in his opposition
or not. The prudent tenant must, therefore, cast around for alternative courses
open to him if he is obliged to quit the premises and must then decide whether
it is safer to adopt one of those alternative courses or to take the risks
inherent in proceeding with an application for a new tenancy. The tenant’s
difficulties do not disappear if the landlord withdraws his opposition. In the
present case the landlords, by their counter-notice in March 1980, asserted
that they intended to carry out redevelopment on the premises and required
possession for that purpose. The withdrawal by the landlords in July 1980 of
their opposition on these grounds left alive the possibility that the landlords
remained anxious to redevelop and would be able to prevail on the court to
grant a new tenancy to the tenants of a short duration or a tenancy which could
be determined by the landlords as soon as they were in a position to carry out
works of redevelopment. When a landlord serves a counter-notice under section
30(1) (e), (f) or (g)
he brings to bear influence and pressure on the tenant to consider the
advisability of quitting the premises. That pressure and influence are not
removed as soon as the landlord withdraws his opposition. By then the tenant
will, in most cases, have made investigations and inquiries which he would not
have made if the landlord had not served a counter-notice in the first place.
The prudent tenant must consider his alternatives and will have reason to fear
that his days of occupation are numbered and will not be reassured by the
withdrawal of the landlord’s opposition to the grant of a new tenancy.
In my judgment, a landlord who serves a counter-notice opposing
the grant of a new tenancy (e), (f)
and (g) presents the tenant with a choice between the doubtful
possibility of a new tenancy or the certainty of compensation under section 37.
Once such a counter-notice is served, the landlord has no right both to recover
the demised premises and to avoid payment of compensation. It is not right to
treat the tenant as being in no different or worse position than he would have
occupied if the landlord had never served a counter-notice.
† Editor’s note: Also reported at [1982] 2 EGLR 69; (1982) 264 EG
1001
This is a very different situation to one where the tenant has
found alternative accommodation before he serves his section 26 notice. Such a
tenant faces none of the difficulties contemplated by Templeman LJ.
Mr Wonnacott drew my attention to Rous v Mitchell
[I991] 1 WLR 469*, a case under the Agricultural Holdings Act 1986. It was held
that a landlord’s notice under that Act would, in the same way as a notice
under section 26(6) of the 1954 Act, be invalid if it contained a statement as
to the landlords’ intention that was not honestly made: see per
Glidewell LJ at p487G. Reference was made in the course of the judgment to Lord
Denning’s speech in Betty’s Cafés Ltd v Phillips Furnishing Stores
Ltd (No 1) [1959] AC 20† at p50:
Such being the true interpretation of these notices, I am of the
opinion that they must be given honestly and truthfully. They are not to be
regarded merely as pleadings preparatory to a trial — in which parties, I
regret to say, sometimes deny the truth, or refuse to admit it, if it suits
their plan of campaign. These practices are intended to be acted upon before
there is a trial at all. On the receipt of such a notice, the tenant has to
decide his course of action — for instance, whether to accept the alternative
accommodation that is offered, or whether to accept the landlord’s word that he
intends to occupy the premises himself, or as the case may be. In every case he
has to decide whether to apply for a new lease or not. It would be deplorable
if a landlord could be allowed to get an advantage by misrepresenting his state
of mind or any other fact. Suppose he said in his notice: ‘I intend to
reconstruct the premises,’ or ‘I intend to occupy for the purposes of my own
business,’ when he, in fact, had no such intention at all. On the faith of such
a statement, the tenant might be induced to abstain from applying to the court
for a new tenancy, because he would think it no use to do so. He would know
that he would have to pay the costs if he lost. Just imagine the tenant’s
consternation if at the end of the tenancy, after he had left, the landlord did
not reconstruct the premises or occupy them himself, but straightway let in
someone else.
* Editor’s note: Also reported at [1991] 1 EGLR 1; [1991] 03 EG
128
† Editor’s note: Also reported at (1958) 171 EG 319
and at p52:
What is the result of this? If the notice had been a dishonest
notice in which the landlords had fraudulently misrepresented their intention —
or, I would add, if there had been a material misrepresentation in it — I
should have thought it would be a bad notice.
Reference was also made to Marks (Morris) v British
Waterways Board [1963] 1 WLR 1008. In that case, Harman LJ said at p1018:
You must not mislead the tenant: you must not say anything which
is fraudulent, but if your notice is given in good faith and the fact about
reconstruction can be substantiated by the person who is the landlord when the
hearing comes on, I think the counter-notice really has served the purpose
which the legislature can be said to have required of it.
Pearson LJ said at p1020:
What one has to inquire into in regard to the notice given under
section 26 is whether it was given bona fide: whether it was an honest notice.
It may be that there are some further requirements with regard to it. It may he
that it would be void if it were deceptive or misleading or if it contained
some material misrepresentation.
Mr Wonnacott disclaimed any allegation of fraud or mala fides
against Racal (correctly, in my judgment), but he did allege that the section
26 notices contained a material misrepresentation in that, by making proposals
for a new tenancy, it was implicit that they wanted a new tenancy. Thus, he
said, Lord Denning’s observations in Betty’s Cafés apply with equal
force to their conduct, as they would to Sun Life if Sun Life misrepresented
that it wished to redevelop.
The high point of Mr Wonnacott’s case on this issue is Cadogan
v Morris [1999] 1 EGLR 59*. In that case, the Court of Appeal held that
a tenant’s notice to acquire a new lease under the Leasehold Reform Act 1993
was invalid because the Act requires a tenant’s notice to state the premium
that the tenant ‘proposed’ to pay, and the tenant had inserted a nominal figure
instead of a genuine estimate of the sum that he was asking the landlord to
accept. Stuart-Smith LJ said at p61B:
The tenant is required to specify the premium he proposes to pay.
He did not do so; he deliberately specified a figure that he did not propose to
pay. I do not think that the tenant is required to offer his final figure that
he may he prepared to go to, but he should, in my view, offer a realistic
figure.
* Editor’s note: Also reported at [1999] 04 EG 155
Because he did not do so, the notice was invalid.
Mr Sheehan submitted that ‘a realistic figure’ is not the same as
an inquiry into intent. He directed me to a passage at p60H:
The notice is the start of the procedure, which ideally will lead
to the parties agreeing the terms of the new lease. The Act is designed to
encourage parties to reach an agreement and, if they do so, time and money is
saved. Only in default of agreement does the matter have to be determined by
the leasehold valuation tribunal. If a realistic offer is made at the outset,
the landlord can accept it, without spending time and expense on valuations or
negotiations. And the fact that he may recover most of these costs from the
tenant under section 60 does not alter the policy of the Act. We are told by Mr
Radevsky that, not infrequently, when tenants realise what they are going to
have to pay for the new lease, they no longer wish to continue. It is better
from everyone’s point of view that this should be realised at the outset, with
consequent saving of costs.
I am not sure that the passage is of much help to him. It seems to
me to be predicated on the basis that the procedure to be embarked upon is one
of genuine negotiation leading to a result desired by the tenant, namely the
grant of a new lease. As I understand the Cadogan case, there was no
suggestion that the tenant did not want to renew the lease.
In my judgment, Mr Wonnacott is correct. It seems inherently
unlikely to me that the legislative intention of an Act, said to enable tenants
occupying property for business, professional or certain other purposes to
obtain new tenancies, was to allow compensation to outgoing tenants by
misrepresenting their intentions concerning their desire for a new tenancy. This
would be a licence to any outgoing tenant to obtain compensation merely on the
service of a notice, where he knows that the landlord wishes, for example, to
redevelop or occupy the premises himself. I accept Mr Wonnacott’s argument that
the scheme of the 1954 Act is closely analogous to that of the Leasehold Reform
Act 1993 and that the Court of Appeal’s reasoning in the Cadogan case
ought to apply equally to the present. It seems to me that the 1954 Act is
designed to let each party know where he stands, to enable constructive
discussion or application to the court in default. I would therefore construe
the reference to ‘proposals’ in section 26(3) to mean ‘genuine proposals’.
Mr Sheehan argued that such a construction would be out of touch
with commercial reality by imposing a requirement of intention to take a
renewal at the time of service of a section 26 notice. A section 26 notice may
be served up to 12 months in advance of the expiry of the term, and, in many
cases, service of a section 26 notice is the tenant’s only means to ascertain
his landlord’s intention. Many tenants will not have any particular intention
in respect of renewal until they are aware
only with knowledge of this that the tenant can evaluate the alternatives and
form his intention with respect to renewal.
I believe that Mr Sheehan overstated the difficulties. Each case
will turn on its own facts, but I think it will be a rare case in which a
landlord can say that the tenant did not have a genuine intention when serving
his notice. It seems to me that it would not be enough to establish a
misrepresentation as to intention to show that a tenant was keeping his options
open. It would only be in comparatively rare cases, such as the present, where
a landlord can show that the tenant has in fact taken steps to find alternative
premises or where there is other proof that the tenant has taken a final
decision not to renew before serving the notice, that the landlord would be
able to succeed. That is perhaps why the experienced counsel in this case could
find no direct authority on the issue, notwithstanding that the Act has been on
the statute books for 45 years.
Given my findings of fact as to Racal’s intentions by the date of
the first section 26 notices, I hold that all the notices were invalid.
Issue 5: quantum of damages
If the section 26 notices are invalid, no compensation will be
payable to Racal.
If I am wrong in my construction of the Act, compensation would be
payable under section 37 at twice the rateable value of the property at the
date of service of the landowner’s counternotice. However, the property formed
part of a larger hereditament for rating purposes, so the property did not have
a rateable value of its own. The rateable value has had to be apportioned.
There is no agreement between the parties.
The appropriate procedure is set out in section 37(5): see above.
The court has no jurisdiction to determine the rateable value. Any dispute must
be referred to the Commissioners for Inland Revenue for decision by a valuation
officer.
Mr Sheehan accepted that this is so.
Issue 6: counterclaim premature
Mr Wonnacott submitted that the counterclaim, as pleaded, was a
claim in debt and that no debt could arise until the Commissioners for Inland
Revenue determined the rateable value. He cited no authority that this was
claim in debt, and I am not sure that he was right, as debt traditionally
requires a promise. It is, however, of academic interest only. If Racal were
entitled to compensation, the counterclaim as pleaded cannot be correct, as it
seeks compensation in a liquidated sum. Mr Wonnacott did not dispute that Racal
would be entitled to claim a declaration that it is entitled to compensation in
an amount to be determined. I agree that that is the proper way in which the
counterclaim should be framed.
This might mean that Racal would have difficulty in maintaining the
plea of set-off pleaded at para 15 of the defence. I heard no argument on
whether a right to a sum in the future can be relied upon as a set-off, and, on
my findings, the point does not arise.
Summary and conclusions
I have held that:
1. the repair necessary to the roof of Unit 2A is that recommended
by Mr Brown, namely to oversheet the slates with profiled metal sheeting;
2. the diminution in value for the purposes of calculating the cap
on the damages imposed by section 18(1) of the 1927 Act should be approached on
the storage basis;
3. VAT should be included as part of the cost of the works;
4. the notices issued by Racal under section 26 of the 1954 Act on
9 January 1998 and on 11 March 1998 were invalid.
The result of my findings is that Sun Life is entitled to judgment
on the claim for the sums (agreed subject to liability) of £192,776 by way of
capped damages for breach of covenant to repair and £2,937.50, being the costs
of the section 146 notices. The counterclaim fails.
I will hear further submissions on interest, costs and the
appropriate form of order.
Claim allowed; counterclaim dismissed.
