Hammersmatch Properties (Welwyn) Ltd v Saint -Gobain Ceramics and Plastics Ltd & Anor

A repairing covenant requires deterioration from a previous physical condition and remedial work judged against the age, character and locality of the premises. Repair is preferred to replacement unless repair is not reasonably or sensibly possible. Under section 18(1) of the Landlord and Tenant Act 1927, damages are capped by the diminution in the value of the reversion. Where putting premises into repair would cost more than their value in repair, the relevant comparison may be between the value in repair and the site value. Loss of rent arising from the repairing breach falls within the same statutory cap.

The claimant landlord brought a dilapidations claim following the expiry of a lease of a large industrial and office building. The parties agreed most of the repair costs, but disputed the appropriate works for certain mechanical and electrical items, the cost of professional fees, the valuation of the reversion, and claims for loss of rent and insurance.

The central issue was whether the claimant could recover the cost of putting the building into repair or whether section 18(1) of the Landlord and Tenant Act 1927 limited recovery to the diminution in the value of the reversion.

1. Repairing obligations. A covenant to keep premises in good repair is engaged only where there is disrepair, meaning deterioration from a previous physical condition. The required standard is objective and depends on the age, character and locality of the premises and the requirements of a reasonably minded tenant of the relevant class. The obligation is not to restore the premises to their condition at the start of the lease.
2. Repair or replacement. Replacement is required only where repair is not reasonably or sensibly possible. The claimant must prove both the relevant disrepair and that repair is not reasonably or sensibly possible. Where repair and replacement are both reasonably open options, damages are assessed by reference to repair unless replacement is cheaper. The court therefore allowed replacement of two boilers, but repair of the remaining boilers, switchpanels and lifts. The total reasonable cost of the works was £2,399,104, with agreed professional fees of £158,007.
3. Section 18(1). The first limb of section 18(1) imposes a ceiling based on the objective diminution in the value of the reversion at the term date. The second limb extinguishes damages where the landlord subjectively intended demolition or structural alteration that would render the repairs valueless. The defendants relied only on the first limb. The evidence did not establish the settled intention required for the second limb.
4. The value of the building in repair was assessed at approximately £3,000,000 and its site value at £2,100,000. Because the cost of repair and associated allowances exceeded the value in repair, the diminution was assessed by reference to the difference between those two values, namely £900,000.
5. Loss of rent was recoverable, if at all, only as damages for breach of the repairing obligation and was subject to the same statutory ceiling. It could not be recovered in addition to the capped damages. The separate claim for insurance costs was abandoned. Judgment was therefore entered for £900,000, plus schedule costs of £20,320.40 and interest at 4.5 per cent per annum, with the interest calculation on schedule costs to be agreed.