Repairing covenant — Damages – Valuation – Lease containing tenant’s repairing covenant – Respondent tenant leaving premises in disrepair – Appellant landlord claiming damages for breach of covenant – Judge valuing reversion on basis of hypothetical purchaser — Whether properly calculating damages on hypothetical facts — Appeal allowed
The respondent company was the tenant of a listed building pursuant to a lease granted by the appellant landlord. The lease contained a covenant under which the respondent was obliged to keep the building in good repair. Following the expiry of the lease, the respondent remained in occupation under a tenancy at will and the repairing obligations continued to apply.
The respondent made two separate offers to take on a new lease of the building, but both were rejected by the appellant. The respondent vacated the building, leaving it in a state of disrepair. The appellant brought an action against the respondent claiming damages for breach of its repairing obligations.
Under section 18 of the Landlord and Tenant Act 1927, damages for breach of a repairing covenant could not exceed the amount by which the value of the reversion in the premises was diminished owing to the breach of such a covenant. In the instant case, the parties agreed that the value of the reversion in the premises was £950,000 in its current state and that its value would be £1,069,838 if the repairs were carried out, leaving a difference of £119,838. However, the judge held that, if the appellant had marketed the freehold reversion for six months before the expiry of the lease, a purchaser who, having found that the respondent was willing to pay a rent of £64,200 pa for a new tenancy, would have increased his offer for the reversion by 7.4% to £1,020,300. Therefore, the judge made an award of damages that was the difference between that sum and the actual value of the reversion for the purposes of section 18. The appellant appealed.
Held: The appeal was allowed.
The judge had erred by embarking on an assessment based on hypothetical facts that caused him to misidentify the subject matter of the valuation and which was not permitted under section 18 of the 1927 Act: Inland Revenue Commissioners v Clay [1914] 3 KB 466 applied.
The fact was that the appellant had not received an increased offer and there had been no prospect of a contract for a new lease being agreed with the outgoing tenant on the valuation date. The judge should have valued the bundle of rights available to the appellant on that date. There had been no special purchaser as envisaged by the judge and there was no justification for inventing one: Hanson v Newman [1934] Ch 298; Smiley v Townshend [1950] 2 KB 311; and Jaquin v Holland [1960] 1 WLR 258 considered.
Jonathan Gaunt QC (instructed by Denton Wilde Sapte LLP) appeared for the appellant; Mark Wonnacott (instructed by Davenport Lyons) appeared for the respondent.
Eileen O’Grady, barrister
