As 2013 draws to a close, valuers, building surveyors and property litigators will be reflecting on a good year for reported dilapidations cases, book-ended by two hearings in Sun Life v Tiger Aspect.1 Tim Reid reviews the detail.

In March 2013, the High Court dealt with a £2.1 million dilapidations claim by Sunlife in respect of a Soho property, built and fitted out to a state-of-the-art standard in 1973. Sunlife’s tenant, Tiger Aspect, had acquired the lease in 2000 after its predecessor had failed to comply with the repairing covenants. Similarly, Tiger neglected its maintenance and repairing obligations.
 
When faced with the dilapidations claim following lease expiry in 2008, Tiger argued that, if it had carried out the repair work required under its lease, the remedial works would have amounted to about £700,000 but the landlord would still have had to carry out substantial further works in order to bring the property to the 2008 market. Much of those works would have superseded the works that Tiger should have carried out. On that basis, Tiger said that its liability should be capped (under section 18(1) of the Landlord and Tenant Act 1927) at £240,000, which, it said, was the diminution in value of Sunlife’s interest arising out of the disrepair.
 
The issue for the Court hinged on whether the tenant could disregard many of the repair works it would otherwise be obliged to carry out on the basis that (as was the case here) the landlord would inevitably refurbish the property after the lease had expired and before bringing it to the market.
 
The High Court found that the first question was whether the landlord could have let or sold the property, if it had been returned by Tiger, repaired, to 1973 standards, without a significant discount. If so, then the measureof the landlord’s loss would be the cost of putting the property into that condition, or (if lower) the difference in value between the building in its actual condition and the required condition. If there was no market for the property in its repaired 1973 condition, then the landlord would not be able to recover the additional costs necessary to bring the property to the modern market. The tenant would also not be liable for the cost of repair works that were within its obligations but which would have been rendered worthless by the modernisation work. That is, it would not be liable for “supersession”.
 
The process outlined by Mr Justice Edwards-Stuart in the High Court for working out what is payable can be illustrated in figure 1.
 
On 5 December 2013, Sun Life and Tiger Aspect were in the Court of Appeal, seeking to challenge the High Court’s decision, although judgment is not expected until early 2014. Whilst the industry will await the Court of Appeal judgment with interest, the mechanics of the process outlined by Mr Justice Edwards-Stuart are not being challenged. Instead, the Court will be asked to revisit the way in which the High Court understood the valuation evidence when applying the above principles. As the appeal demonstrates, each dilapidations dispute must be viewed very much on its own facts, but the short and articulate judgment from the High Court will remain a useful reference point for dilapidations practitioners.
 
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