Landlords’ dilapidations recovery may be limited to the cost of work they actually carry out -Car Giant Ltd and another v Mayor and Burgesses of the London Borough of Hammersmith  EWHC 197 (TCC)
Hammersmith Borough Council’s lease included a covenant to yield up the property in good and substantial repair.
Car Giant together with others was the Council’s landlord. The landlords brought a claim for dilapidations at the end of the lease which exceeded the cost of the works that they, the landlords, had undertaken. They had carried out some repair work, however, much of the work referred to in the schedule of dilapidations had not been done with no explanation put forward.
Each party’s expert valuer produced valuations of the diminution in the value of the landlords’ reversionary interest (which would operate as a cap on the damages recoverable), by comparing the value of the property in good condition with its value subject to the actual disrepair.
- The main issue was whether the landlords could recover the entire remedial costs (both incurred and not incurred) on the basis that there was a diminution in value, or whether the cap set out in section 18(1) of the Landlord and Tenant Act 1927 limited the recovery, as the Council argued.
- Secondly, the court considered whether the landlords were entitled to the costs of the preparation and service of the defects schedule, the claim summary, and a drainage report.
- Thirdly, the court considered whether the landlords were entitled to recover a sum for professional fees.
- Where the repairing covenants have been breached, the cost of repair should be the starting point or at least a very real guide to assessing the damage to the reversion. Therefore, as the landlords had not put forward evidence of their intention to carry out the remaining works, or evidence that their reversion had diminished by an amount equivalent to those additional costs, the court was unable to take into account those further costs in calculating the diminution in value.
- The costs claimed for the preparation of the defects schedule, claim summary and drainage report were not adequately backed up by evidence. The only evidence the court had was the cost of the preparation of the schedule of defects, therefore only those costs were properly recoverable.
- No evidence had been brought in relation to the claim for professional fees. Accordingly, no award would be made in relation to that claim.
The Court was unconvinced by the landlords’ arguments and lack of evidence of its intention, six years down the line, to undertake the work set out in its schedule. The relevant units had also been re-let without those works being undertaken. In those circumstances, the court found that they should not “be taken into account in arriving at the diminution of value”.
Landlords should therefore be wary of serving schedules of dilapidations without a genuine intention to carry out all the work listed. In addition, they should monitor progress of any negotiations for dilapidations and be sure to factor in any change in circumstances that affect any remedial programme. In particular they should ensure that the reasons for the change are documented and justifiable and where possible supported by evidence.