Lyndendown Ltd v Vitamol Ltd

Damages for breach of a repairing covenant are capped by the diminution in the value of the reversion under section 18(1) of the Landlord and Tenant Act 1927. Where a sub-tenant remains in occupation and becomes the landlord’s direct tenant under Part II of the Landlord and Tenant Act 1954, the sub-tenant’s repairing obligations must be reflected in valuing the reversion. The relevant question is whether the alleged breach caused substantial diminution at the valuation date. A private arrangement concerning repair responsibilities may be beneficial or neutral; significant uncertainty or an impediment to enforcement must be established by evidence before it can reduce value. Appellate courts should respect trial judges’ findings of fact and assessments of expert valuation evidence.

The freeholder claimed damages from its former head tenant for alleged failure to comply with repairing and delivery-up covenants. At expiry of the head leases, a sub-tenant occupied the industrial units and held over under Part II of the Landlord and Tenant Act 1954, with the freeholder entitled to enforce the sub-tenant’s repairing obligations directly under section 65(2).

The sub-tenant had received a private letter from its parent company concerning responsibility for repairs exceeding the obligation to keep the premises wind and watertight. On a preliminary issue, the County Court found no substantial damage to the reversion. The central issue on appeal was whether that letter adversely affected the value of the reversion at the term date.

1. Appeal dismissed. The court upheld the finding that the alleged breaches caused no substantial diminution in the value of the reversion.
2. Under section 18(1) of the Landlord and Tenant Act 1927, damages for breach of a repairing or delivery-up covenant cannot exceed the diminution in the value of the reversion. The relevant valuation date was the term date. Subsequent events that were operative or potential at that date could illuminate the valuation. The approach stated in Jacquin v Holland [1960] 1 WLR 528 and Smiley v Townshend [1950] 2 KB 320 was applied.
3. Because the sub-tenant was in occupation when the head lease expired, it became the freeholder’s direct tenant under section 65(2) of the Landlord and Tenant Act 1954. Its repairing obligations under the sub-lease therefore had to be taken into account in assessing the reversion. Any damage was consequently nil or nominal unless the private letter altered that position.
4. The trial judge was entitled to prefer Mr Lidgley’s evidence to Mr Conn’s. The letter did not affect the sub-tenant’s obligations under the sub-lease. Whether it was an advantage because it encouraged repairs at the parent company’s expense or merely neutral, it did not create a significant risk that would materially reduce the value of the reversion.
5. The judge was also entitled to distinguish advice that might have been given in 1999, when a licence to sublet was sought, from the assessment in 2001 or 2002 of what a willing seller and purchaser would do while a tenant was in occupation with a right to renew. No sufficient ground existed for disturbing the factual findings or expert assessment.

Lord Justice Jacob and Lady Justice Smith agreed. The agreed costs ground was not pursued.

• Court of Appeal (Civil Division): The appeal was dismissed, with the lower court’s findings of fact and assessment of the experts upheld.
• Croydon County Court: HHJ Laurie determined the preliminary issue and found that there had been no substantial damage to the reversion.