Craigard (Dartford) Limited & Anor v Westbury Homes (Holdings) Limited & Anor

A terminal dilapidations claim is assessed first by the common-law cost of work needed to restore the covenanted condition, subject to mitigation and proportionality. A tenant is entitled to the least onerous compliant performance. A landlord therefore cannot recover wholesale replacement costs merely because a new system is preferred or intended: replacement must be proved necessary, and repair is the measure if a reasonable specialist could recommend it. The landlord’s intention to refurbish does not ordinarily extinguish the primary claim. Consequential rent loss is recoverable only if caused by the breach. The Landlord and Tenant Act 1927 caps the entire damages claim by diminution in the value of the reversion.

The claimants, freehold owners of office premises, brought a terminal dilapidations claim after a lease expired on 8 July 2023. They sought the cost of remedial works, lost rental income and professional fees. The defendants accepted liability under the repairing covenants and the surety provisions but disputed the extent and cost of the works.

The principal issues were whether the existing HVAC system required complete replacement or could be repaired, whether the claimants’ refurbishment intentions affected common-law damages and consequential losses, and how the statutory cap based on diminution in the value of the reversion applied.

Disposition. Judgment was given for the claimants in the sum of £648,141.47. Interest and costs were left for agreement or further directions.

1. Repair standard. The court applied the standard stated in Proudfoot v Hart (1890) 25 Q.B.D. 42 and Simmons v Dresden [2004] EWHC 993 (TCC). The condition required by a repairing covenant is judged by the premises’ age, character and locality, and by whether they are reasonably fit for occupation by a reasonably minded tenant of the relevant class. The standard is one of fact and degree and does not require perfection. Disrepair need not make premises non-functional. Applying Blue Manchester Limited v North West Ground Rents Limited [2019] EWHC 142 (TCC), the absence of actual leakage did not prevent the defective underfelt from constituting a breach.
2. HVAC system. The defendants had failed to maintain the system and it was out of repair at lease expiry. However, the claimants did not prove that complete replacement was necessary. The tenant was entitled to perform the covenants in the least onerous manner. Applying the approach in Ultraworth Ltd v General Accident Fire & Life Assurance Corp Plc [2000] EWHC 172 (TCC) and Sunlife Europe Properties Limited v Tiger Aspect Holdings Limited [2013] EWHC 463 (TCC), if repair or replacement could have been recommended by a reasonable specialist, damages fell to be assessed on repair. The claimants’ desire to future-proof and market the premises did not establish the necessity of replacement. Evidential gaps could not be treated as proof against the defendants.
3. Common-law damages and causation. The primary measure was the reasonable cost of putting the premises into the condition in which they should have been left, subject to mitigation and proportionality. The landlord’s intention to replace or refurbish did not extinguish that primary claim. The second limb of section 18(1) of the Landlord and Tenant Act 1927 did not apply. Consequential rent loss and alternative-accommodation costs were irrecoverable because they would have been incurred in any event as part of the claimants’ intended improvements. Professional and dilapidations fees were recoverable because the breaches materially caused those costs.
4. Statutory cap. Section 18(1) imposed an upper limit on the entire damages claim, including repair costs and consequential rent loss. In assessing diminution, the court considered the likely treatment of the premises by a hypothetical purchaser. It accepted that such a purchaser would have been satisfied with a functioning HVAC system capable of repair and would not necessarily have replaced it. Following the parties’ subsequent calculation, the recoverable damages were £648,141.47.