Ravengate Estates Ltd v Horizon Housing Group Ltd & Ors

Under 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. That diminution requires comparison of two hypothetical sales: the premises in proper repair and the premises in disrepair. The likely market and purchaser must be identified. Where the evidence shows that the only likely purchaser would redevelop the premises, repairs made unnecessary by that redevelopment do not diminish the purchase price. The relevant deduction is limited to repair items which the purchaser would still have to undertake. A costed schedule of dilapidations is not automatically the measure of loss.

Ravengate, the landlord, appealed against a decision of HHJ Crawford Lindsay Q.C. in the Central London County Court on a claim for dilapidations following the expiry of Horizon’s six-year lease of six flats. The judge awarded £50,000 for diminution in the value of the reversion, together with the cost of the schedule and loss of rent. Ravengate contended that damages should be measured by the substantially higher cost of remedial works.

The premises had remained in disrepair, but planning permission had been obtained for redevelopment involving additional accommodation. The central issues were the scope of the demise, including relevant air space, and the application of section 18(1) of the Landlord and Tenant Act 1927 where a hypothetical purchaser would redevelop the property.

1. Appeal dismissed. The judge below was entitled to assess the statutory diminution by reference to the likely purchaser of the reversion and to award £50,000 for the survival items of disrepair.
2. The lease, properly construed, included the relevant air space. The plans clearly enclosed the full volume of the building up to the upper horizontal plane, and nothing in the wording of the lease displaced that inference. The air-space argument therefore did not prevent the development potential from being considered in valuing the reversion.
3. Section 18(1) of the Landlord and Tenant Act 1927 requires a comparison between two hypothetical sales: one of the premises in proper repair and one in disrepair. Assessment ordinarily requires identification of the market and the likely purchaser. The cost of repairs may be relevant, but it is not automatically the diminution in value.
4. On the evidence, the premises were ripe for redevelopment and any likely purchaser would buy with redevelopment in mind. Most of the claimed repairs would consequently be rendered otiose. The purchaser would require a deduction only for the survival items which it would still have to carry out. The judge’s finding that those items were worth £50,000 was unchallenged.
5. The court did not decide whether prospective development of adjoining, non-demised land could be taken into account in valuing the reversion, because the relevant air space formed part of the demise. The court indicated that it did not cast doubt on the judge’s conclusion on that question.

• Court of Appeal (Civil Division): [2007] EWCA Civ 1368. Appeal dismissed. The court upheld the Central London County Court’s assessment of £50,000 diminution in the value of the reversion.
• Central London County Court: HHJ Crawford Lindsay Q.C., 11 October 2006. Judgment for the landlord on the dilapidations claim, including £50,000 for diminution, £2,333 for the schedule of dilapidations and £9,116.25 for loss of rent.