Consortium Commercial Developments Ltd v ABB Ltd

In a dilapidations claim, damages for breach of a repairing covenant are capped by the diminution in the value of the reversion where Landlord and Tenant Act 1927, section 18(1) applies. The diminution is assessed by valuation evidence and is not necessarily equal to the cost of repair.

For reinstatement and statutory works, the appropriate measure is the reasonable cost of works which the landlord probably intends to carry out. Consequential rent and rates require proof that the breach caused the claimed loss. A credit for rent overpaid with VAT must include the VAT element. Interest should reflect a commercial rate and the claimant’s circumstances.

The claimant landlord brought a dilapidations claim following the expiry of a 15-year business lease. The parties agreed the estimated costs of repair, reinstatement and statutory works. The principal disputes concerned the statutory cap on repair damages, the proper measure for reinstatement and statutory items, consequential rent and rates, the VAT treatment of an overpayment credit, and interest.

The court assessed the freehold value of the premises in good and actual repair, considered the claimant’s intention to undertake works before reletting, and determined the resulting damages and interest.

1. Repair damages. The diminution in the value of the reversion was the correct measure for the repairing breaches. A pound-for-pound deduction of repair costs was inappropriate. Having assessed the property at £900,000 in good repair and £675,000 in its unrepaired condition, the court limited the repair claim to £225,000 under section 18(1) of the Landlord and Tenant Act 1927.
2. Reinstatement and statutory works. The common-law measure depended on the landlord’s actual loss and whether reinstatement was reasonable. Where the landlord reasonably intends to carry out the works, damages may be based on their cost. The claimant intended to relet the premises in good condition, and the agreed costs of £13,310 for reinstatement and £2,783 for statutory items were recoverable.
3. Rent and rates. The claimant failed to establish, on the balance of probabilities, that the disrepair caused the claimed 12-week loss of rent and rates. The poor market conditions made it artificial to assume that marketing delay would correspondingly delay a letting. That head of claim failed.
4. Credit and interest. The credit for rent overpaid with VAT had to include VAT. Interest under section 3 SA of the Senior Courts Act 1981 was awarded at 3% per annum, being 2.5% above base rate, on the net damages from 16 June 2011.
5. The claimant therefore recovered net damages of £192,910.78, together with £23,862.80 interest.

Not stated in the judgment.