The recent case of Car Giant Ltd v Hammersmith and Fulham LBC [2017] EWHC 197 (TCC) emphasises the difficulties that a landlord could face in recovering the full cost of the remedial works required in a dilapidations claim if some of those works have not actually been carried out.

Background

Car Giant Ltd and another company (“Landlords”) commenced a claim in relation 35 of the 39 units on an industrial estate which were sub-let to the London Borough of Hammersmith and Fulham (“Council”) under a 25-year full repairing lease which expired in February 2011.

Both parties’ surveyors agreed that the reasonable and necessary cost of remedying the Council’s breaches of the repairing covenants was £402,887.86. By September 2016 remedial works valued at £183,897.86 had been carried out, but the Landlords had not carried out the remaining works and the units had been re-let. The only issue for the court was whether the Landlords were entitled to recover the full costs of remedying the breaches, including the costs of the remedial works that had still not been carried out 6 years after the sub-lease to the Council had ended.

The Landlords’ argument

The Landlords suggested that the remaining works had not been carried out because:

·     finance was not available to carry out repairs;

·     they wanted to avoid disruption to occupiers;

·     there was a rolling programme of repairs already in place;

·     they didn’t want to incur the costs as long as the Council were refusing to pay.

The Court’s decision

The Court accepted that these may have been good explanations but there was no evidence to support them, and the burden of proving the diminution in value rested with the Landlords.

The Court made the following main findings:

·         the failure to carry out some of the repairs could be an indication that the repairs were not necessary (Latimer v Carney [2006] EWCA Civ 1417);

·         there was no adequate explanation as to why those repairs had not been carried out so long after determination of the lease;

·         the fact that the units had been re-let at a market rent suggested that remaining works were minor or unimportant and there was no evidence that the remaining works were serious or substantial;

·         the diminution in value of the Landlords’ interest in the premises equated to the cost of the remedial works carried out and therefore, under section 18(1) of the Landlord and Tenant Act 1927, the Landlords’ claim would be limited to a sum similar to the cost of those works.

Practice points

This decision emphasises the challenges for landlords with potential dilapidations claims in terms of balancing the competing interests of:

·         re-letting as soon as possible on the best terms possible to ensure a continued rental stream;

·         carrying out necessary remedial works to ensure that the best rent can be obtained;

·         funding the works required in the absence of payment from the former tenant;

·         countering any suggestions by the tenant that works carried out are unnecessary and/or the diminution in value is less than the cost of the works carried out.

However, the biggest lesson that landlords can learn from the decision is the need to provide evidence to support any submissions put forward. In the absence of good evidence to support your case, it can be very difficult to persuade a Judge to find in your favour.