Tiger Aspect Holdings Ltd & Anor v Sunlife Europe Properties Ltd

For breach of a tenant’s repairing covenant at the end of a lease, common law damages are the reasonable cost of works necessary to put the premises into the condition in which they should have been left. Work going beyond that condition, including work superseded by a landlord’s intended improvements, is not recoverable. Landlord and Tenant Act 1927, section 18, caps that recovery at the diminution in the value of the reversion caused by the breach. Where the necessary works substantially correspond with the repairs undertaken and there is no satisfactory evidence of a lower diminution, that diminution may be inferred from the reasonable repair cost. A court may reject a valuation founded on an erroneous factual assumption and use a disclosed expert report’s otherwise uncontroversial methodology with the factual inputs it has found.

The tenant vacated Soho Square offices in November 2008 after leases containing comprehensive repairing obligations. The landlord carried out extensive works before reletting and claimed their cost as damages for dilapidations.

Edwards-Stuart J assessed common law damages at £1,353,254 and found the actual-condition value of the reversion to be £4,462,000. He assessed its compliant-condition value at £5,870,000, so that the statutory cap did not reduce the recoverable sum. His decision is reported at [2103] EWHC 463 (TCC) and [2013] 2 P & CR 55.

The tenant appealed the valuation of the reversion in the condition in which it ought to have been left, and contended that the statutory cap had not been established.

1. Appeal dismissed unanimously. The judge’s unchallenged assessment of the common law measure of damages was the proper starting point. That measure was the cost of works necessary to place the premises in the condition required by the repairing covenants, subject to the section 18 cap.

2. The assessment had correctly excluded work beyond the tenant’s obligations. The relevant condition was that which would make the premises reasonably fit for occupation by an appropriate type of tenant, having regard to their age, character and locality. The judge had carefully distinguished necessary remedial work from improvements and work rendered valueless by supersession.

3. The court distinguished Mather v Barclays Bank plc [1987] 2 EGLR 254. That case concerned premises which were inevitably to be substantially improved, so the repair cost could not establish diminution in value. Here, if the tenant had returned the building in the required condition, the landlord would not have undertaken the works. With limited exceptions, the works actually done were those needed to remedy the breaches. It was therefore open to infer diminution from the reasonable cost of those works in the absence of satisfactory evidence of a lower figure.

4. The judge was entitled to reject the tenant’s proposed valuation because it incorporated the erroneous assumption that substantial further works would be needed to make a covenant-compliant building lettable. Under CPR Part 35.11, the tenant’s disclosed expert report remained evidence although the expert was not called. The judge could use its uncontroversial residual-valuation methodology as a template while inserting the repair-cost figures that his factual findings required. He was not obliged to adopt a headline valuation founded on a mistaken assumption.

• Court of Appeal (Civil Division): Dismissed the tenant’s appeal and upheld the conclusion that the section 18 cap did not reduce the damages.
• High Court, Queen’s Bench Division, Technology and Construction Court: Edwards-Stuart J awarded the landlord the cost of necessary remedial works and incidental items: [2103] EWHC 463 (TCC); [2013] 2 P & CR 55.