Car Giant Ltd & Anor v London Borough of Hammersmith

In a dilapidations claim, damages for breach of repairing covenants are capped by the diminution in the value of the reversion under Landlord and Tenant Act 1927, section 18(1). The reversion must be valued on two bases: with the premises in the condition required by the covenant and in their actual condition at the valuation date. The cost of completed repairs is prima facie evidence of diminution. The cost of uncompleted works cannot be treated as diminution without evidence that the works were necessary and affected value. The landlord bears the burden of proving the diminution. Post-valuation conduct, including failure to undertake repairs and the ability to let premises at market rent, may inform the assessment.

The claim concerned dilapidations at the end of a 25-year lease of an industrial estate. Liability and the cost of remedying the repairing breaches were agreed. The dispute was confined to the diminution in the claimants’ reversionary interest and the application of section 18(1) of the Landlord and Tenant Act 1927.

The claimants sought recovery of the agreed remedial costs, while the defendant contended that the statutory cap was substantially lower. The court also considered fees for preparing the defects schedule, professional fees and interest. The central issue was the proper valuation of the reversion and the extent to which completed and uncompleted repairs should be taken into account.

1. Statutory cap and valuation method. The recoverable damages were limited by section 18(1) of the Landlord and Tenant Act 1927 to the diminution in the value of the reversion. The correct method was to value the landlord’s interest at the termination date on two bases: first, assuming the premises were in the condition required by the covenants; and secondly, in their actual condition. The difference was the recoverable diminution.
2. Completed works. Where repairs had been carried out, their agreed reasonable cost was prima facie evidence, and a real guide, to diminution. The court accepted the relevant completed repair costs, subject to deductions for likely recovery from certain occupying tenants and an allowance for financing costs.
3. Uncompleted works. The claimants had not explained why substantial sums of agreed remedial costs remained unspent six years after the valuation date. There was no evidence that the outstanding works were serious, necessary or reflected in the value of the reversion. The court therefore made no allowance for them. The ability to let the units at market rents supported the conclusion that the remaining defects were minor or unimportant. The burden of proving diminution remained on the claimants.
4. The common-law assessment of damages was £402,887.86, but the section 18(1) cap reduced recoverable diminution damages to £166,000. The claimants also recovered £13,125 for preparing and serving the defects schedule. Unsupported professional fees were refused. Interest was awarded at 1% above base rate from the valuation date pursuant to section 35A of the Senior Courts Act 1981, subject to calculation and further submissions on costs.

First-instance decision. No earlier or appellate decision is stated in the judgment.