Ferguson Latimer & Anor v Carney & Ors

For the first limb of section 18(1) of the Landlord and Tenant Act 1927, damages for breach of a repairing covenant are capped by the diminution in the value of the reversion. Formal expert valuation evidence is not indispensable. The court may infer diminution from reasonable estimated repair costs and surrounding evidence, including the need to complete repairs before reletting. Where refurbishment supersedes some repairs, an appropriate discount must be made. A failure to restore decorative condition may be treated as a repairing breach where it also breaches the repairing covenant. An appellate court may refuse new factual grounds requiring evidence unavailable at trial, and may set aside a costs order based on a wrong principle.

The landlords appealed from the Salford County Court’s dismissal of their claim against former tenants for damages for breach of repairing and decorating covenants. The landlords had produced a schedule of estimated repairs, but no expert valuation of the reversion and no reliable separation between repair and improvement costs.

The premises were refurbished for a new tenant after the lease ended. The appeal concerned the application of the statutory cap, whether the notice of appeal should be amended to raise delay in reletting, whether periodic decoration was within the statutory concept of repair, and whether the order for costs of a Part 20 indemnity claim was plainly wrong.

Disposition. Arden LJ allowed the appeal to the extent described below. The amendment application was refused. Wilson LJ agreed.

1. At common law, the ordinary measure for breach of a repairing covenant is the reasonable cost of carrying out the required repairs. That measure is subject to the cap in section 18(1) of the Landlord and Tenant Act 1927 and to general principles governing contractual damages, including the approach in Ruxley v Forsyth [1996] AC 344.

2. The first limb requires a comparison between the open-market value of the premises in disrepair at the term date and the value they would have had without the breach. It is sufficient to establish that the diminution was at least the amount claimed. Formal valuation evidence is not essential. In an appropriate case, reasonable estimated repair costs and circumstantial evidence may establish both the existence and amount of diminution. The necessity of repairing the roof and completing other repairs before reletting supported that inference.

3. Subsequent events may be considered where they illuminate the basis of the term-date valuation. Refurbishment may show that some repairs would have been superseded. The landlord must therefore show that the disrepair caused loss or that the relevant repairs survived the refurbishment. On the available evidence, the roof estimate of £775 was recoverable. The specific estimated repair costs were subject to a 60% discount to reflect the possibility that improvements had rendered some repairs unnecessary or futile.

4. The proposed amendment based on delay in reletting raised factual issues not determined at trial and required evidence about the repair period and the state of the market. It would have been unfair to permit the point, and the further proposed ground concerning professional costs was also too late.

5. Although the court did not decide the general interpretation of repairs under the Landlord and Tenant Act 1954, a failure to repair the decorative state of premises was treated as a breach of the repairing covenant for section 18(1) where it also constituted a breach of a periodic decoration covenant.

6. The costs discretion was exercised on a wrong principle. The landlords’ commencement of proceedings was not the sole cause of the Part 20 costs. Nearly all those costs resulted from the second respondent’s decision to defend the indemnity claim. It was therefore plainly wrong in principle to place the whole burden on the landlords. The costs order was set aside, with the appropriate replacement order to be agreed or determined on written submissions.

1. Court of Appeal (Civil Division). In [2006] EWCA Civ 1417, the appeal was allowed in part on the cap and costs issues. The application to amend the notice of appeal was refused.
2. Salford County Court. HH Judge Gilliland QC dismissed the landlords’ substantial damages claim, awarded nominal damages for breach of covenant against the second and third respondents, and ordered the landlords to pay the relevant costs.