Archive for February, 2010

And the level of damage is …

Commonly, a tenant fails to yield up property at the lease end in a physical state which accords with its repairing covenant.  This happened in the case of Van Dal Footwear Ltd v Ryman Ltd [2009] EWCA Civ 1478.  The dispute concerned the landlord’s level of damages.

The first instance judge assessed the cost of conducting the works under the tenant’s covenant at £135,606.  He considered whether this was capped by the provisions of s18(1) Landlord and Tenant Act 1927.  The landlord’s damages shall not, said Mr Justice Lewison sitting in the Court of Appeal, “exceed the amount, if any, by which the value of the reversion whether immediate or not, in the premises is diminished, owing to the breach of [the tenant’s] covenant or agreement”.  He held the judge had been correct when he said “The diminiution in value is assessed by assuming an outright sale of landlord’s interests in the property on the term date in the open market, on the basis that the Defendant had done all the work which the tenant ought to have done and on the basis of its actual state and condition.  The difference between these two values is the diminution in value caused by the breaches.”  On the advice of experts, the judge found that the value of the building in repair would have been £1,068,838 and that the value of the building in its actual condition would have been £950,000, a difference of £118,838.

However, the experts also agreed that for the property to sell on the date the lease expired, it would have been necessary to have marketed it for six months.  During that hypothetical marketing period, argued the tenant, it would have offered to take a new lease to the prospective purchaser (as it had in fact unsuccessfully done to the landlord prior to the lease end).  The judge agreed and found that the hypothetical purchaser would have accepted the offer and consequentially would have increased its bid by 7.4% giving a value of £1,020,300 – leaving an assessment of damages of £48,538.  Mr Justice Lewison said the judge was wrong and “what the judge was required to do was to value the bundle of rights that the landlord actually had on the valuation date”.  The judge, he said, had “mis-identified the subject of the valuation”.

If you wish to hear more about dilapidations, why not speak to Hatherleigh Training?