Common Law Damages and the Statutory Cap

At the end of the term, a landlord may find that he has a damages claim against the departed tenant. It has been conventional to differentiate between the common law measure of damages and the statutory cap on those damages.[1]

The Basic Common Law Measure

At common law, damages comprised

COST OF        –         BETTERMENT          +          LOSS OF RENT    =  DAMAGES

WORKS.                    (IF ANY)                                DURING WORKS    AT COMMON

(PLUS VAT IF                                                           PERIOD                     LAW

APPLICABLE)

 

The Cost of Works Element

The cost of works[2] element was (as is well-known) discussed in Joyner v Weeks [1891] 2 Q.B. 31. The facts were as follows: a tenant was coming to the end of his lease term. He had an obligation to carry out repairs at the end. In the meantime, the landlord had granted a reversionary lease to a third party, who was a tenant of ground floor premises on either side under leases from the same landlord. The intention was that, when the reversionary lease came into possession, the third party would carry out £200 of alterations and £45 of repair so as to create a shop unit along the entire ground floor. The outgoing tenant stated that the existence of the reversionary lease meant that the landlord had suffered no loss by reason of his failure to carry out repairs.

Wright J (giving the Judgment of the Divisional Court) said as follows:

Two measures have been suggested, the first the amount of money which it will cost the lessor to do the repairs, with some allowance for loss of rent or occupation during the time of reparation and with some deduction where proper by reason of substitution of new for old; the second, the diminution of the value of the lessor’s estate by reason of the non-repair. In general they will both come to the same thing, and it can seldom be the case that the diminution in value can be more than the cost of repair. It may, however often be the case that the diminution in value by reason of some or all of the tenant’s defaults is much less than the cost of making them good. A part of the structure may have been designed for a purpose which has become obsolete, or a building may for many reasons be found at the end of a term to be as valuable, or nearly as valuable, in a partially as in a completely repaired state. In such cases, which measure is to be preferred? [he goes on to list cases supporting either basis].

It appears to us that the better measure is the amount of the diminution of value, but not exceeding the cost of doing the repairs (with the addition or deduction as above suggested), and that in the cases which appear to adopt the other test it was not intended to decide that the cost of repairing ought to be or can properly be given so far as it exceeds the diminution of value. To give that excess might in effect be to give an unfair kind of specific performance to the great detriment of the lessee without any advantage to the lessor as such; whereas the proper function of a right of action for damages for breach of contract seems to be to make good to the aggrieved party the damages which he has actually sustained [He lists cases]. It may be urged that such a rule will admit expert evidence to an inconvenient extent; but this is not a sufficient reason for acting upon a wrong principle, nor is this objection in fact obviated by the apparently more simple rule of taking the cost of repairs. It is matter of common experience that the cost of repairs is the subject of oppressive litigation.

Applying these conclusions to the present case, we think that the judgment of the official referee must be set aside, but that judgment cannot be entered for the 70l. or the 45l., or any other sum, and a new trial must take place (unless the parties can agree) in which the question will be how much, if at all, the value of the plaintiff’s estate and interest in the premises was diminished by the non-repair, regard being had to the situation and other circumstances, including the consideration that a tenant of the adjoining houses might be willing to give as much for the plaintiff’s house in its unrepaired state as he would have given if the covenant had been performed.

However, this was reversed by the Court of Appeal. Lord Esher MR stated

[A] series of dicta of learned judges have been referred to, which seem to me to shew that for a very long time there has been a constant practice as to the measure of damages in such cases. Such an inveterate practice amounts, in my opinion, to a rule of law. That rule is that, when there is a lease with a covenant to leave the premises in repair at the end of the term, and such covenant is broken, the lessee must pay what the lessor proves to be a reasonable and proper amount for putting the premises into the state of repair in which they ought to have been left. It is not necessary in this case to say that that is an absolute rule applicable under all circumstances; but I confess that I strongly incline to think that it is so. It is a highly convenient rule. It avoids all the subtle refinements with which we have been indulged to-day, and the extensive and costly inquiries which they would involve. It appears to me to be a simple and businesslike rule; and, if I were obliged to decide that point, I am very much inclined to think that I should come to the conclusion that it is an absolute rule. But it is not necessary to determine that point in the present case. The rule that the measure of damages in such cases is the cost of repair, is, I think, at all events, the ordinary rule, which must apply, unless there be something which affects the condition of the property in such a manner as to affect the relation between the lessor and the lessee in respect to it. The question is whether there is any such circumstance in the present case. I think that there clearly is not. The circumstances relied upon by the defendant did not affect the property as regards the relation between the lessor and the lessee in respect to it. They arose from a relation, the result of a contract between the plaintiff and a third person, to which the defendant was no party, and with which he had nothing to do. It was said that this contract passed an estate in the premises to such third person. If it had done so, I think it would have made no difference; but it did not; it only gave an interesse termini during the continuance of the defendant’s term, and could not take effect to give an estate as between the plaintiff and the third person until the relation between the plaintiff and the defendant was at an end. At the moment of the determination of the lease between the plaintiff and the defendant, the premises were out of repair. And, if we cannot look at the contract between the plaintiff and the third person, or anything that took place under it, there was nothing but the ordinary case of the breach of a covenant to leave the premises in repair. In my opinion the contract between the plaintiff and the third person cannot be taken into account; it is something to which the defendant is a stranger. So, also, anything that may happen between the plaintiff and the third person under that contract after the breach of covenant is equally matter with which the defendant has nothing to do, and which cannot be taken into account. These are matters which might or might not have happened, and, so far as the defendant is concerned, are mere accidents. The result is that there is nothing to prevent the application of the ordinary rule as to the measure of damages in such a case. There is no decision to the contrary of what we are now deciding.

The judgment of Fry LJ is to similar effect. The nineteenth century common law, motivated by a suspicion of valuation and expert assistance, appears therefore to have created a special rule for damages in end of term dilapidations claims. No matter how futile the exercise and how wasteful the effort, a landlord was entitled, at common law, to insist on performance of the repairing covenants.[3]

There is a respectable body of opinion, judicial and extra-judicial,[4] that the Court of Appeal got it wrong in Joyner, or at least that the view there expressed is somewhat antiquated. The basis for this argument is the view that the common law of damages has moved on, and moved on in Ruxley Electronics v Forsyth [1996] A.C. 344. The case is memorable for two reasons. The first is for Lord Bridge’s retirement speech, which ends as follows:

My Lords, since the populist image of the geriatric judge, out of touch with the real world, is now reflected in the statutory presumption of judicial incompetence at the age of 75, this is the last time I shall speak judicially in your Lordships’ House. I am happy that the occasion is one when I can agree with your Lordships still in the prime of judicial life who demonstrate so convincingly that common sense and the common law here go hand in hand. For the reasons given in the speeches of my noble and learned friends, Lord Lloyd of Berwick, Lord Jauncey of Tullichettle and Lord Mustill, I, too, would allow the appeal and restore the judgment of Judge Diamond Q.C.

The second is because it refined the modern law of contractual damages. A swimming pool had been constructed, but it was built too shallow. It was six feet deep, and not seven feet and six inches. The trial judge made the following findings of fact

(1) the pool as constructed was perfectly safe to dive into; (2) there was no evidence that the shortfall in depth had decreased the value of the pool; (3) the only practicable method of achieving a pool of the required depth would be to demolish the existing pool and reconstruct a new one at a cost of £21,560; (4) he was not satisfied that the respondent intended to build a new pool at such a cost; (5) in addition such cost would be wholly disproportionate to the disadvantage of having a pool of a depth of only 6 feet as opposed to 7 feet 6 inches and it would therefore be unreasonable to carry out the works; and (6) that the respondent was entitled to damages for loss of amenity in the sum of £2,500.

Lord Bridge noted that the difference in value between the as-built and the as-designed pools was “nil” (at 353). Did this mean that the Forsyth was able to insist on compliance with the terms of the contract, and was able to require the swimming pool to be dug up and restarted? The answer, unsurprisingly, was “no”. While the basic rule was that a person who had suffered as a result of breach of contract was entitled to the cost of curing the defect, this was not invariably the measure to be applied.

A survey of the cases on damages disclosed the following trend:

“[O]ne finds the court emphasising the central importance of reasonableness in selecting the appropriate measure of damages. If reinstatement is not the reasonable way of dealing with the situation, then diminution in value, if any, is the true measure of the plaintiff’s loss. If there is no diminution in value, the plaintiff has suffered no loss. His damages will be nominal.”

Furthermore, Lord Jauncey noted,

“Damages are designed to compensate for an established loss and not to provide a gratuitous benefit to the aggrieved party from which it follows that the reasonableness of an award of damages is to be linked directly to the loss sustained. If it is unreasonable in a particular case to award the cost of reinstatement it must be because the loss sustained does not extend to the need to reinstate. A failure to achieve the precise contractual objective does not necessarily result in the loss which is occasioned by a total failure.”

Lord Jauncey pointed out that there may be breaches of contract which did not justify reinstatement works, so that instead the correct measure of loss ought to be a difference in value. A house built with a  tier of blue bricks did not have to be torn down because the design contracted to be built had specified that the bricks should be red.

However, in the Ruxley context of common law damages for breach of a building contract, what is or is not reasonable is not purely a question of what the market would do. A given contract might be highly subjective in its objects. Lord Jauncey gives the example in his judgment of a grotesque folly to be erected in the back garden of a house (at 358). Assume it is badly built, and collapses. Assume further that the market would heave a collective sigh of relief, as the hideous folly would have reduced the value of the property considerably. Reasonableness is “reasonableness in relation to a particular contract, and not at large”. The disappointed folly owner could therefore insist on the cost of cure as his measure of damages. On the other hand, where doing the works was unreasonable – such as the replacement of a deep enough swimming pool with one pointlessly deeper – the cost of carrying out the works would not be a recoverable form of damages, even if that cost had been incurred. However, using the diminution in value approach, one was left with a loss of nil. That too seemed unsatisfactory. In the latter case, the disappointment experienced by Mr Forsyth should sound in damages, in the form of the “consumer surplus” or “loss of amenity” damages, and he was awarded. £2,500 for his disappointment.

We are not here interested in the amenity damages part of the judgment, but in the common law assessment of damages for breach. In particular, it is worth noting how the House of Lords approached the question of choosing between cost of cure on the one hand, and diminution in value on the other. It is clear that the intentions and wishes of the disappointed contracting party are relevant is assessing whether it is reasonable to approach the matter on one basis or another. For instance, as the folly example demonstrates, performance can be insisted upon, and cost of cure damages recovered, in the face of evidence of what a notionally rational market would do in the same situation.

It has been suggested on occasion that the developments in Ruxley should lead to a re-evaluation of the basis of damages recognised in Joyner. Indeed, in PGF, the applicability of Ruxley to dilapidations claims was accepted by the Court (see at paragraph [34], and following). The effect of this is that the question of what is, and what is not, a reasonable repair can already be dealt with at the stage of setting the common law damages, so that a “reasonableness” filter is already introduced at that, first, stage. There is then a further, or perhaps superfluous, filter when the section 18(1) cap is applied under the first limb. Indeed, parts of PGF suggest that even the second limb might be anticipated by the common law (e.g. at paragraph [46]).

Arden LJ in the Court of Appeal in Latimer v Carney [2006] 3 E.G.LR. 13 said as follows:

1. The basic measure of damages for breach of the covenant to repair is the reasonable costs of executing the repairs required to fulfil the covenant (see Hanson v Newman [1934] Ch 298). This general rule is subject to the statutory cap in section 18(1) of the 1927 Act, set out above. It is also subject to general principles of law, including the principle established in Ruxley v Forsyth [1996] AC 344. In that case the House of Lords held that, where the expenditure required to be done to an asset to remedy a breach of contract is out of all proportion to the benefit to be obtained, the appropriate measure of damages will be the diminution in value of the asset rather than the expenditure. In Ruxley, the owner of the asset had no intention of expending the money required to remedy the defect and this point raises the question of the extent to which the subjective intention of the claimant is relevant. However, it is unnecessary to deal with that point in this case as the landlords have executed the repairs, that is, they have done works which are or supersede the repairs the respondents were bound to effect. Although courts are not normally concerned with what a claimant does with his damages, a landlord’s conduct in taking steps or not taking steps to remedy a breach of the covenant to repair may throw light on the question whether the repairs are reasonably necessary, and thus on the question whether there was any diminution in value of the reversion as a result of the disrepair.

1. The effect of section 18 is, in any case where its application is in issue between the parties, to require the court to find the amount of the damage to the value of the reversion of the premises caused by the failure to repair. To do this the court has to find the difference between the value of the premises in disrepair on the open market and the value that the premises would have had if there had been no breach of the covenant to repair. It need not do more than find that this difference was at least as great as the amount claimed against the tenant. In an ideal world, the parties will agree the relevant values or alternatively they will have produced the evidence of a single expert as to those values, or, if the court has given permission for more than one expert, they will produce their experts’ evidence together with a joint report from them identifying the differences between their views and the reasons for such differences so that the judge can come to a conclusion as to which expert evidence he prefers. But the failure to adduce expert evidence does not preclude a finding as to those values by other means because in many cases it will be obvious that the disrepair must have caused some damage to the value of the reversion and that the cost of doing the repairs is a reliable guide to the amount of that damage.

She concluded at paragraph [60] that

“Parliament enacted the cap in section 18(1) to meet the rigour of the measure of damages for breach of the repair covenant at common law. It may be that the courts would not apply the common law measure of damages in all cases today: I would accept the argument of counsel for the second respondent (Mr Matthew Hall) that, if the common law measure alone were relevant to a landlord’s claim, the courts today might in an appropriate case adopt the measure of damages in section 18(1) in preference to that which has previously been held to be the measure at common law (see generally Ruxley v Forsyth).”

The trouble is that Joyner is well-established as matter of authority, and Parliament has cemented its position by enacting section 18 of the Landlord and Tenant Act 1927, which intervention was of course predicated on (as it was a response to) Joyner’s correctness. Therefore, it is sometimes said that the ordinary rules of contractual damages do not apply to damages for breach of a repairing covenant, which are (it is said) sui generis, and cannot simply be subsumed under the general rule of contractual damages. In short, therefore, the starting point in the case of breaches of dilapidations covenants is the “rule” identified in Joyner, which is that the measure of common law damages is the cost of curing the disrepair. The Betterment Element

If the covenant can only be performed in a way that improves what is returned to the landlord when compared to what was granted under the lease, the tenant cannot claim a discount for betterment. Bear in mind that we are dealing with damages here, so that by definition the works will not have been done in the real world. Betterment has been held to be recoverable in cases of total destruction of the premises, where the tenant would, in order to comply with the covenant, have to rebuild from the ground up and return to the landlord a new, rather than an in-repair old, factory or warehouse. In such cases, an allowance has been made in the cases. On the other hand, where there is no other way of complying with a covenant other than by repairing by way of replacement and hence improvement, there is no entitlement to a discount. Where there is a range of ways in which a repair can be effected (e.g. could replace, could patch up), betterment is avoided because the damages should be computed by reference to the lesser works in any event.

Loss of Rent

It is conventional to include a claim for lost rent during the period of repair. There is a limit to this, however, in that loss of rent will only be claimable insofar as it represents an actual loss to the landlord.

The Statutory Cap

Section 18 will be familiar. It states (so far as material) that

Damages for a breach of a covenant or agreement to keep or put premises in repair during the currency of a lease, or to leave or put premises in repair at the termination of a lease, whether such covenant or agreement is expressed or implied, and whether general or specific, shall in no case exceed the amount (if any) by which the value of the reversion (whether immediate or not) in the premises is diminished owing to the breach of such covenant or agreement as aforesaid; and in particular no damage shall be recovered for a breach of any such covenant or agreement to leave or put premises in repair at the termination of a lease, if it is shown that the premises, in whatever state of repair they might be, would at or shortly after the termination of the tenancy have been or be pulled down, or such structural alterations made therein as would render valueless the repairs covered by the covenant or agreement.

The point of section 18(1) was to deal with the fall-out from Joyner. It has two limbs to it.

• Under a covenant to repair whether at the end or during the term, damages are capped by reference to the damage to the reversion.
• Under a covenant to repair no damages will be recovered if the disrepairs claimed would be rendered valueless by alterations or demolitions intended at or shortly after the termination of the tenancy.

As was explained by HHJ Toulmin QC in PGF II SA v Royal & Sun Alliance Insurance Plc [2011] 1 P & CR 11, the effect of section 18 was to mitigate the rigour of the Joyner “rule” (see at paragraphs [1]. [18] – [19]). Further, (at paragraph [21]):

This provided the method of valuing dilapidations. First, it was necessary to value the common law damages of putting the premises in repair. Secondly, the cap was to be applied limiting the damages to the diminution in the value of the reversion. Finally, although, in effect, part of the calculation of the common law damages, the courts have considered, as a second and separate limb, whether the landlord was entitled to any damages by reason of the fact that the building was to be pulled down or altered structurally so as to render the works of repair valueless.

And also at paragraph [70.13]:

The traditional view is that there are two limbs to Section 18 of the 1927 Act. This division is helpful in that the issues in relation to repair under what is considered the first limb must be considered objectively i.e. what a reasonable landlord would do to put the premises in repair, whereas the second limb is subjective, namely a consideration of what this landlord actually decided at the date of the termination of the lease and whether it was reasonable for him so to decide.

Limb One

The first and most commonly encountered limb relates to the “reversion” cap. It applies to repairing covenants, or covenants of a similar nature.

“In reality, the question for this court is whether to interpret section 18(1) literally or purposively. If the former approach is taken then, a covenant for periodic decoration is not a covenant to repair because it will have to be performed even if the property is not in poor decorative repair (see for example Gemmell v Goldsworthy [1942] SASR 55,57 on which counsel for the appellants, Mr Michael Mulholland, relied) However, where the breach of the covenant for periodic decoration coincides with a breach of the repairing covenant, the landlord’s real complaint is that there has been a failure to repair.

In all the circumstances I consider that this court should treat a failure to repair the decorative state of the premises as a breach of the covenant to repair for the purposes of the first limb of section 18(1) of the 1927 Act even if that failure also constitutes a breach of a covenant for periodic decoration in the same lease. On that basis the judge’s finding that there was a breach of the covenant to paint the premises at the last year of the term (see clause 2(5) set out above) does not assist the appellants.”

In end-of-term damages claims (i.e. breaches on yielding up), the interest which must be valued is that which the landlord holds at the end of the tenant’s lease. The valuation date is that date at which the freehold reversion becomes vested in the landlord free from the lease. The valuation proceeds on a dual basis, on assumption being the premises in repair in compliance with the tenant’s obligations, and the other proceeding on the basis of the premises in their actual state and condition. This was expressed as follows in Hanson v Newman [1934] Ch 298 per Luxmoore J:

“What the section provides for is that the damages for breach of covenant on the termination of a lease are not to exceed the amount by which the value of the reversion, whether immediate or not, in the premises is diminished owing to the breach of such covenant or agreement; that is, you take the value of the reversion as it is with the breach – the value of the property which has reverted as it is subject to the breach – and you take it as it would be if there were no breach, and you provide that the amount of damage shall not exceed the amount by which the value of the property repaired exceeds the value of the property unrepaired.”

It is trite law that where a landlord has or intends to carry out the works himself, then this is a strong prima facie indicator that this ought to be the manner in which damage to his interest should be assessed: see e.g. Jones v Herxheimer [1950] 2 KB 106; Smiley v Townshend [1950] 2 KB 311.

Ruxley Again

The question which arises here is whether section 18(1) is now rather otiose, and whether the question of what is, and what is not, reasonable will already have been dealt with at the common law stage in light of the decision in Ruxley. It seems well arguable that it is not. First, it is well-arguable as a matter of authority that in the context of repairing covenants, Joyner is still the starting point. This seems to have been the approach of the Courts in a number of recent cases. Secondly, Ruxley does not do the same “work” as section 18.

Under Ruxley, whether or not a claimant is entitled to cost of cure, or diminution in value, is a matter of reasonableness, to be tested by reference to the particular facts. One of those facts may be a subjective desire to see the work done strictly in accordance with the specifications. However, under the first limb of section 18(1), the subjective intentions of the landlord (though they might point to the cost of works being reasonable) are not of primary relevance,  as the first limb of section 18(1) proceeds on the basis of an objective open market valuation. What the landlord does in fact might indicate what the market would do, it may even be a pretty good guide or strong prima facie indicator, but it is no more than that. It may therefore be that in section 18(1) world, an ugly, collapsed folly is best left collapsed, whereas the person who deliberated commissions one from a builder because that is what he wants to have can insist on the cost of curing the defect. Section 18(1) therefore seems, on the conventional view, to leave little room for subjective desires and wants. It is therefore not entirely easy to see that Ruxley may be equated with section 18(1), still less how one can bolt them together. Returning to PGF, one can see how difficult it is to reconcile the subjective/intentional element in Ruxley with the objective “what would the market do?” test seemingly mandated by section 18(1) (first limb), paragraphs 70.3 – 70.5.

Further, Ruxley was concerned with alternative expressions of loss. What the disappointed contracting party suffers could either be expressed as the cost of curing what has gone wrong, or (saddling him with the unsatisfactory fruits of the contract) a financial expression of the diminution in value (or some entirely notional subjective sum). What the structure in section 18 sets out to do is to provide a basic figure – common law damages – but then to restrict it by reference to an open market valuation as a cap. The reasonableness gloss imposed by section 18 is functionally different from that contained in Ruxley.

A Recent Case: Mid-Term Dilapidations

The effect of section 18 upon a continuing obligation to keep in repair where the lease was ended prematurely was considered in re Teathers Limited (sub nom. Baroque Investments Limited v Heis and another) [2013] 1 P& C.R. 11. In that case, there was an obligation on the tenant to keep in repair during the term, and to yield up in repair. The specific terms of a deed of surrender had resulted in the release of the latter obligation, as it released liabilities accruing “on or after, but not before” the surrender. The effect of this was that, for the purposes of bringing a damages claim, the date of surrender (and hence the fact of surrender) itself had to be disregarded. Instead, a claim for breach of covenant to repair during the term had to be brought. The landlord purported to claim those losses from the liquidators of Teathers, the tenant. It argued that it had been forced, following the surrender, to re-let the premises at a loss by reason of the disrepairs in existence, including a substantial rent-free period. A difficulty with that was that the events post-dated the date of breach, and the date for assessment of damages. Further, the liability for damages during the term was itself subject to section 18(1), first limb. This meant that a damages claim needed to take those provisions into account. Due to the terms of the deed of surrender in that case, the correct date of assessment of damages was the day before the surrender. At that date, the lease was still on foot, and the damages therefore fell to be assessed on the basis of a hypothetical section 18(1) valuation presupposing the continued existence of the lease for the duration of the term, so that, in effect, the value of the reversion would be depressed because it would itself be encumbered by a continuing lease which would be assumed to continue to run.

The result in Teathers should be distinguished from the position that arose Hanson (above). In Hanson, a lease as forfeited before its contractual expiry date. The tenant sought to argue that, when applying the section 18 cap, credit had to be given for that benefit and the value to the landlord attributable to early possession, and that this should be set-off against the damages payable by the tenant. This was rejected at all instances. The valuation hypothesis to be applied was to assume the premises (subject to such term of the lease as remained, in that case none) in a state of repair and the premises (subject to such term of the lease as remained, in that case none) in a dilapidated state at the date of re-entry, with the difference between those two amounts being the amount of diminution in value of the reversion. The valuation date being the date of forfeiture, the value after the event of the unencumbered reversion to the landlord was not relevant.

It was therefore the drafting of the Deed of Surrender in Teathers that required the Court to disregard – some might say artificially – the fact of the surrender, and the proceed on a valuation basis that was counterfactual, namely that the lease would continue to full term. It remains to be seen whether, were such a case to arise again, it could nonetheless be argued that:

(1)        As a matter of valuation, the fact of a tenant’s insolvency, and the fact of near-concluded negotiations for a surrender, should be taken into account when assessing the value of the encumbered reversionary interest;

(2)        There is nothing in section 18 that sets the valuation date in aspic, and that there is no reason why (given the fact that there is no other conflict between section 18 and the common law, as noted in PGF) the valuation date under section 18 should not also be moveable, as the date for valuation at common law is, to allow useful subsequent events to be taken into account to allow a proper and complete valuation of the reversionary value. Such a result would currently be impermissible in light of Hanson, and other cases, as well as the principle of valuation, now entrenched in the cases, that subsequent events will have at most corroborative value.  This position was confirmed in Latimer, where Arden LJ explained that

The valuation exercises required by section 18 fall to be performed at the date of determination of the lease containing the covenants to repair (the term date). But on general principle (see the authorities cited by me in Gorne v Scales [2006] EWCA Civ 311) subsequent events can be taken into account if they relate to the bases of valuation and thus throw light upon it. Such events would include refurbishment or sale of the premises after the term date.

The argument is also difficult to run in light of the rejection in PGF of the submission that the valuation exercise under section 18 should take into account the value of hoped-for future development of the building: see at paragraphs [64] – [68]. It may also be an argument that is hard to run in light of Van Dal Footwear v Ryman [2010] 1 W.L.R. 2015 (albeit about end-of-term valuations). In that case, Ryman held over as tenants at will in commercial premises. In the course of that holding over, a number of offers were made for a new lease to the landlord by Ryman, which the landlord felt were unacceptable, and which the landlord rejected. Ryman vacated, and argued that, when it came to the section 18 valuation, the valuation of the property in its dilapidated stated needed an uplift to reflect the fact that Ryman’s offer would have been accepted by the hypothetical purchaser. This was accepted at first instance, but rejected by the Lewison J giving the leading judgment in the Court of Appeal, paragraph [11], re-affirming that section 18 valuations had to proceed on the basis of the bundle of rights which the landlord had vested in him as at the valuation date, meaning when the reversion has vested in the landlord. At that date, in that case, there were no offers for new tenancies over the subject premises, merely rejected offers and a hope of further ones.

[1] The standard reference textbook for these purposes is, of course, Dowding & Reynolds’ The Law of Dilapidations, where the points raised in this piece are dealt with extensively and comprehensively. See also K. Reynolds QC, “Damages for Dilapidations” (being one of the 2010 Blundell Memorial lectures).

[2] Because the “works” are the works to be done by the tenant, the cost of works is to be assessed by reference to what the tenant would have done by way of reasonable compliance with the covenant (i.e. he might have patched rather than replaced, and so on). See Ultraworth v General Accident and Fire [2000] 2 E.G.L.R. 115.

[3] Followed in Ebbetts v Conquest [1895] 2 Ch 377, and subsequently. Although the rule was (as stated by Lord Esher MR) a qualified one, the qualification does not in fact seem to have come into play so as to disapply it, and it was applied in cases in which section 18 would undoubtedly now come into play. For extreme cases, see Inderwick v Leech(1885) 1 T.L.R. 484; Rawlings v Morgan (1865) 18 C.B. (N.S.) 776.

[4] E.G. Hill and Redman at para A3606.

 

AUTHOR – OLIVER RADLEY-GARDNER, FALCON CHAMBERS