Sunlife Europe Properties Ltd v Tiger Aspect Holdings Ltd & Anor

In a terminal dilapidations claim, damages are limited to the lower of the reasonable cost of remedying the breaches, including consequential loss, and the diminution in the value of the landlord’s reversion under section 18(1) of the Landlord and Tenant Act 1927.

The tenant may perform repairing covenants in the least onerous reasonable manner. Repair is generally judged by the age, character and locality of the premises at the date of demise, not by modern standards. Replacement should ordinarily be like for like or the nearest equivalent, subject to law and commercial common sense. The landlord may recover the reasonable cost of necessary remedial work despite carrying out more extensive works, but not work rendered abortive by necessary upgrading or refurbishment.

The claimant landlord brought a terminal dilapidations claim against the tenant and its guarantor following the expiry of two long leases of office and retail premises in Soho. The leases contained full repairing covenants, including obligations concerning the building fabric, mechanical and electrical installations, and yielding up the premises in good and substantial repair.

The tenant admitted breaches but contended that the claim was limited by the statutory cap in section 18(1) of the Landlord and Tenant Act 1927, and that much of the claimed work represented refurbishment, upgrading or superseded repairs. The central issues were the scope of the repairing obligations, the reasonable cost of necessary remedial works, supersession, mitigation, disproportionate expenditure and the diminution in value of the reversion.

1. Measure of loss. The recoverable loss was the lower of the reasonable cost of putting the premises into the condition required by the covenants, together with rent actually lost and expenses actually incurred, and the diminution in the value of the reversion caused by the breaches under section 18(1) of the Landlord and Tenant Act 1927.
2. Scope of the covenants. The tenant was entitled to perform the covenants in the least onerous manner. The premises had to be returned in good and tenantable condition, with the mechanical and electrical systems in satisfactory working order. The required standard was judged by the condition of the fabric, equipment and fittings when demised, having regard to the age, character and locality of the building. The tenant was not required to provide new equipment or equipment with a particular remaining life expectancy.
3. Where plant was beyond economic repair, replacement ordinarily had to be on a like-for-like or nearest-equivalent basis. The tenant was not required to upgrade the premises to current standards, unless required by law or necessary regulations. Covenants against alterations also meant that the tenant was not required, and generally was not entitled, to return premises involving material alterations to the demised building or fixtures.
4. The cost of remedial work remained subject to mitigation and proportionality. The landlord could recover the reasonable cost of remedying the breaches even if it had carried out more extensive works. However, where market conditions required upgrading or refurbishment to let the premises to the appropriate type of tenant, the tenant was not liable for work rendered abortive by that upgrading or refurbishment. This was the principle of supersession.
5. The tenant accepted that the premises, if properly maintained to 1973/74 standards, could have been let in 2009 with only modest additional works. The court therefore assessed the disputed repair items individually. It awarded £1,353,254, comprising the assessed repair costs and associated expenses. The reworked diminution valuation was £1,408,000, so the statutory cap did not reduce the award. Interest was awarded at 3% from expiry of the leases.