Marchday Group Plc v British Telecommunications Plc

Damages for breach of repairing covenants must compensate loss caused by the breach, not loss resulting from the landlord’s separate decision to upgrade or redevelop premises. A claim for lost rent requires evidence that the premises would probably have been let earlier if the covenants had been performed. Where the market shows no realistic demand, the claim fails even if the premises were left out of repair. The court must distinguish remedial works required by the breach from improvements or works attributable to other defaults. Interest under the Supreme Court Act 1981 is discretionary and may be calculated from a realistic date reflecting when the loss was incurred.

Marchday claimed damages from BT for breach of repairing, cleansing and decorating covenants in an underlease of office premises in Middlesbrough. BT’s breach and the reasonable cost of remedial works were admitted.

The disputed claims concerned alleged lost rent, insurance rent and service charges during a period said to have been required for remedial works and reletting. Marchday contended that the premises could have been relet immediately if delivered up in repair. BT contended that the local office market lacked sufficient demand and that the claimed period and losses were unsupported.

The issues were whether the premises would probably have been let earlier if repaired, what rental value they would have commanded, what period was attributable to BT’s breach, and the appropriate interest on the recoverable sum.

1. Claim for consequential losses. The claims for lost rent, insurance rent and service charges failed. The evidence showed that Middlesbrough was substantially oversupplied with relatively poor-quality office accommodation in March 2000 and thereafter. There was no convincing evidence of an existing unsatisfied demand for the Demised Premises or substantial parts of them.

2. The premises were not realistically lettable merely because they were put into repair. Demand was affected by the availability of newer accommodation at Teesdale, the poor quality and configuration of the Building, and inadequate car-parking provision. The premises became capable of attracting a major tenant only after wider refurbishment and improvement. Even if BT had complied with its covenants, there was no reason to conclude that the premises could have been relet earlier.

3. Scope of recoverable loss. BT was liable only for loss caused by its own breaches. It was not liable for consequences attributable to breaches by another tenant or to Marchday’s decision to upgrade the Building. If the issue had arisen, the remedial works attributable to BT would have delayed availability by five weeks. A claim based on the whole period of works, followed by an additional marketing period, had no sufficient legal or factual foundation.

4. The rental value evidence advanced by Marchday was not accepted. If it had been necessary to determine a rental value for repaired premises as at 25 March 2000, £5 per square foot would have been accepted, although that figure probably erred on the generous side.

5. Sum and interest. The recoverable repair cost was £348,830.25, less a credit of £22,604.66, producing £326,225.59. Exercising the discretion under section 35A of the Supreme Court Act 1981, interest ran from 1 October 2000 rather than the date of breach. Simple interest was awarded at 8 per cent per annum, producing interest of £81,297.21. Judgment was entered for Marchday in the total sum of £407,522.80.