Car Giant Ltd v Major and Burgesses of the London Borough of Hammersmith [2017] EWHC 197 (TCC)

The London Borough of Hammersmith were the tenant under a 25 year lease which terminated in February 2011. At the end of the lease they failed to return the property in good and substantial repair. Car Giant, the Landlord, sought an award for damages for the diminution in the value to their reversionary interest. The dilapidations claim exceeded the cost of works that had actually been undertaken.

Diminution in the value

Under Section 18(1) of the Landlord and Tenant Act 1927 damages for a breach by the tenant of a repairing covenant cannot exceed the reduction in the landlord’s reversionary interest caused by the disrepair. The issue in this case was whether the landlord could recover the entire costs of remedying identified disrepair of £402,887, in circumstances where only £183,897 of remedied work had been carried out by September 2016.

Approach

The first step is to identify the breaches of covenant and what remedial work is necessary to remedy the disrepair. Where work has been carried out such costs are prima facie evidence of the damage to the reversion.

Where works have not been carried out, the case of Latimer v Carney [2006] acknowledges that money spent on doing repair work is relevant to determine whether the repairs were necessary. If the works were not necessary, damage to the reversion cannot be inferred from them.

In the Car Giant case, the landlord had no explanation as to why a significant portion of the disrepair had not been carried out, and there was no evidence to suggest that the outstanding repair work would ever be carried out. The fact the units had subsequently been let at market rent suggested that the work outstanding was only of minor importance to a hypothetical purchaser of the landlord’s interest. Therefore, remedial costs for works not carried out could not be used as evidence of damage to the reversion.

The landlord also claimed fees for preparation and service of the schedule, the claim summary and drainage report, however, such claims were not backed up with sufficient evidence. The only evidence the court had was in respect of costs for the preparation of the schedules.

No evidence was called in relation to professional fees. Accordingly only recovery of the costs of preparing and serving the schedule was permitted in relation to the claim for professional fees.

Although the common law assessment of damages attributable to the breaches was £402,887, by reason of s18(1) of the LTA 1927, the recoverable damages were limited to £166,000.

Lessons

Where the landlord does not carry out certain remedial works and cannot provide robust evidence to justify that decision, the works will not be taken into account when calculating diminution of the reversion.