Sunlife Europe Properties Limited v Tiger Aspect Holdings Limited and Another
(CA)  EWCA Civ 1656
The High Court’s decision in the £2.1 million dilapidations dispute between Sunlife (the landlord) and Tiger Aspect (the tenant) received a great deal of commentary in the industry and legal press in early 2013. As tends to happen, the subsequent Court of Appeal decision in December also attracted press coverage, but the issue before the Court of Appeal was quite different from the one that was so capably dealt with by the High Court. Now that the dust has settled, one can look with fresh eyes at the case before the Court of Appeal and ask how it was that Tiger came to ask the Court of Appeal to overturn a valuation that was carried out in accordance with its own expert’s methods.
First, we have to revisit the High Court decision. The High Court held that Tiger had taken the wrong approach to the valuation process under section 18(1) of the Landlord and Tenant Act 1927. Tiger had sought to argue that their liability should be capped under section 18(1) at £240,000, which they said was the diminution in value of Sunlife’s freehold interest in the Soho Square property, arising out of the disrepair. In a detailed, reasoned judgment, Mr Justice Edwards-Stuart explained that if the landlord could have let or sold the property in the condition it ought to have been left in (that is to say, in full compliance with covenants entered into in 1973) then the measure of the landlord’s loss would be the cost of putting the property into that condition or (if lower) the difference between its actual condition and the required 1973 condition (see flow chart below). The parties agreed that the property could have been re-let in 2008 in full compliance condition. The cost of the works was the lower measure, and the Judge meticulously reviewed and assessed that cost on an item-by-item basis.
The High Court’s decision thus went against Tiger, but the effect of that judgment was compounded by the fact that Tiger’s expert was not called to give evidence in the High Court. The parties had submitted expert reports and a joint statement, but once they concluded that the property could have been re-let in its full compliance condition and the parties agreed (perhaps too hastily) that an incoming tenant would not have carried out significant extra work, Tiger decided not to call evidence from its valuer.
It was then common ground that Sunlife’s valuer had not carried out a valuation on the appropriate basis for the circumstances, so the Judge relied instead on the appropriate residual valuation methodology contained in the written report from Tiger’s expert. Item by item, he substituted for the cost of works in that report, his own assessment of the cost of works, so that the same methodology generated a new result. Tiger’s valuer was not there in person to contradict or challenge the Judge’s application of his methodology. Had he done so, his evidence might have improved his client’s position. It has been suggested that Tiger’s expert could have argued that in a location such as Soho Square, one should more readily accept that any incoming tenant would carry out upgrading works even where there was a market for the property in its full compliance condition.
However, the Court of Appeal’s decision was unequivocal. The High Court was entitled to rely on the evidence before it. Being unable to rely on Sunlife’s expert evidence, and in the absence of oral evidence from Tiger’s expert, Mr Justice Edwards-Stuart was right to employ the residual valuation methodology available from Tiger’s expert report. The methodology was of such a nature that by importing his own cost of works calculations (which he had arrived at so meticulously), the mechanism would yield a new figure, from which the Judge was able to infer the diminution value of the property.
The lesson from the High Court was one which reinforced and explained existing principles of dilapidations law. That judgment remains an important one because it so meticulously walked through the full process from costing the works to ascertaining the correct measure of loss and applying that measure to the facts. In contrast, the Court of Appeal decision emphasises a far more practical point; that the court is entitled to, and will, rely on whatever evidence is presented to it, and one should not stand down one’s experts too readily, and certainly not before all matters of valuation have been determined.
The measure of loss (following the High Court decision in Sunlife v Tiger Aspect)
Click here to view the chart.