Some positive news for landlords this week:
The court has confirmed that, even where an outdated property stands little or no chance of being re-let following a tenant's departure, a claim for the loss in reversionary value caused by the breach of the tenant's repairing covenants is still possible.
Even where the landlord does not intend to carry out the repair works, because they would cost more than the ultimate value of the repaired building, the court can still carry out an exercise to value the loss occasioned to the landlord by virtue of the tenant’s breach of the repairing covenants.
In Hammersmatch Properties, the landlord could not afford to carry out the necessary works of repair to its 1930s industrial and office building. It initially estimated the cost of works at £6.8m. The tenant argued that the property could not be let, even in repair, also that no reasonable landlord would spend that kind of money on it and therefore the landlord's claim should be limited to the amount a speculative developer would pay for the site. This, it argued, was only £100,000 more than it was worth in its current state and so the landlord’s claim should be £100,000.
At trial, the court found the cost of putting the property into repair was £2.4m. Taken together with the cost of arranging and financing the work, the judge accepted that the landlord did not intend to carry out the work, where the value of the property in repair would only be just over £3m (by reference to rents obtainable if the property was split into lettable units). The value of the property in its current state was assessed at £2.1m.
Taking into account the value of the property in repair and value as it currently stood, the judge calculated the landlord's loss at £900,000.
This is a common situation today for landlords, where there are limited available funds to carry out repair work to old buildings. This case provides some comfort when faced with a tenant’s challenge to a repair claim.