Cases - Hammersmatch Properties (Welwyn) Ltd v Saint-Gobain Ceramics and Plastics Ltd

Record details

Name
Hammersmatch Properties (Welwyn) Ltd v Saint-Gobain Ceramics and Plastics Ltd
Date
[2013]
Citation
EWHC 1161 (TCC)
Legislation

Landlord and Tenant Act 1927

Keywords
Dilapidations
Summary

The landlord brought a dilapidations claim against the tenants upon the termination of a lease.

The claim arose out of the lease of a building that had been purpose-built in the 1930s as a manufacturing facility. The building comprised a warehouse and ancillary offices, and the lease ran from 1984 to 2009.

When the claim was first initiated, the landlord contended it was worth £6.8m.

The landlord did not carry out the works of repair contended for, saying that it did not have the funds to do so. The tenant contended that if the landlord had suffered any loss, it would be minimal, because the premises were of a nature that they would have been significantly redeveloped by any buyer.

The central issues were

  1. the extent of the tenant’s breaches of covenant;
  2. the measure of damages for diminution in value of the reversion under the first limb of the Landlord and Tenant Act 1927 section 18(1);
  3. whether the landlord was entitled to recover loss of rent and damages representing the cost of insuring the premises until re-let.

The court held:

(1) In considering what works the tenant should have carried out under the lease, and in determining the reasonable and proper cost of those works, the court had to take into account the fact that at the date of the lease, the building was a 50-year old, purpose-built manufacturing unit. The court had to consider what a reasonably-minded tenant of the relevant user class would reasonably require, at the start of the lease, to render the building fit for occupation for the purposes contemplated by the lease (in 1984). The evidence showed that it was necessary to replace 2 boilers and to repair 3 more at a total cost of £33,500. In terms of electrical equipment, the switchpanels were in need of repair and some of the switches had to be replaced, at a total cost of £53,000. Finally, the passenger and goods lifts were in need of repair, at a cost of £91,100. Taking those matters into account together with matters already agreed between the parties, the reasonable and proper cost of the works that the tenant should have carried out was £2,399,104.

(2) The statutory cap in section 18(1) of the Act applied, and landlord's damages were limited to the value of the diminution of the reversion. The first limb of section 18(1) limited damages to the amount by which the value of the reversion was diminished because of the breaches of the repairing obligation. That involved consideration of the reduction in the market value of the landlord's interest on the term date because of the breaches. The tenant's case was that any diminution depended on how the notional buyer would have assessed the value of the premises in and out of repair and whether, in the instant case, their value following subdivision would have exceeded their site value. They argued that the notional buyer would have paid site value with a small uplift had the premises been in repair. Thus, the central question was whether the value of the building for letting would exceed the site value. On the evidence, the cost of putting the premises into repair exceeded their in-repair value. That supported the tenant's submission that the diminution in value was not represented by an out-of-repair valuation based on the cost of the works. The evidence did not show that the landlord had any clear intention one way or another, but was keeping its options open in circumstances where it could not obtain or afford the funding necessary to put the building in repair. Thus, the landlord could not be taken to have intended, at least in any sense that was probative of the diminution in value on the term date, to carry out the dilapidations for which it claimed. Once the resulting figure fell below the site value, then the diminution in value was the difference between the in-repair value and the site value. The site value was £2,100,000, and the diminution in value therefore £900,000. That was the limit of the landlord’s claim.

(3) It was common ground that loss of rent was only recoverable by way of damages for breach of the obligation to repair. Since section 18(1) applied to limit damages to £900,000, the landlord could not recover loss of rent or damages representing the cost of insuring the premises until they were re-let.

Although noted in other cases, and in the primary Dilapidations section, it is useful to note the judge’s summary of the principles he had to apply when assessing the landlord’s claim:

‘53. In approaching the remaining items in dispute I bear in mind the following general principles:

  1. A covenant to keep in good repair and condition is not engaged unless there exists a state of disrepair, that is a deterioration from some previous physical condition: see Post Office v Aquarius Properties [1987] 1 All ER 1055 and Fluor Daniel Properties v Shortlands [2001] 2 EGLR 103.
  2. If there is a state of disrepair it has to be established that the item is below the standard of repair contemplated by the covenant and, if so, what remedial work is needed to restore that item to that standard.
  3. The appropriate standard of repair is such repair as having regard to the age, character, and locality of the premises, would make them reasonably fit for the occupation of a reasonably minded tenant of the class who would be likely to take them: see Proudfoot v Hart (1890) 25 QBD 42; Fluor Daniel Properties v Shortlands [2001] 2 EGLR 103; Mason v TotalFinaElf (UK) [2003] 3 EGLR 91.
  4. The standard of repair is an objective one which is to be ascertained by reference to the circumstances at the date of the lease and what a reasonably minded tenant would require to render the premises reasonably fit for use as a place from which to run its business; see Fluor Daniel Properties v Shortlands [2001] 2 EGLR 103.
  5. The question is what would be required to make the premises reasonably fit for occupation, not what an incoming tenant would require at the end of the lease: see Westbury Estates v RBS [2006] CSOH 177 at [37]; Carmel Southend Limited v Strachan and Henshaw Limited [2007] 3 EGLR 15 at 17E.
  6. The appropriate standard of repair must take account of the age of the building. The obligation is not to return the premises to the condition that they were in at the start: see Mason v TotalFinaElf (UK) [2003] 3 EGLR 91.
  7. In considering the appropriate standard of repair it is relevant to consider the user clause in the lease: Simmons v Dresden [2004] EWHC 993(TCC) at [34] and [48].
  8. When considering whether replacement rather than repair is the appropriate standard:
    1. Replacement is only required if repair is not reasonably or sensibly possible: see Dame Margaret Hungerford Charity Trustees v Beazeley [1993] 2 EGLR 143 and Carmel Southend Limited v Strachan and Henshaw Limited [2007] 3 EGLR 15.
    2. It is for a claimant to prove relevant disrepair and that it is of such an extent or nature that repair is not reasonably or sensibly possible: see Mason v TotalFinaElf (UK) [2003] 3 EGLR 91.
    3. Where a reasonable surveyor might equally well advise either repair or replacement, damages are to be assessed by reference to the cost of repair unless replacement would be cheaper: Riverside Property Investments v Blackhawk Automotive [2005] 1 EGLR 1114: Carmel Southend Limited v Strachan and Henshaw Limited [2007] 3 EGLR 15.
    4. The fact that an item has exceeded its indicative life expectancy so that it would or might be economic for a prudent owner to replace it does not mean that it is not in a good and safe working order repair and condition: see Fluor Daniel Properties v Shortlands [2001] 2 EGLR 103 at 111G and Westbury Estates v RBS [2006] CSOH 177 at [35-37].

54. In the present case I must therefore take into account the age, character and locality of the Norton Building which was a purpose-built manufacturing building which was about 50 years old at the date of the lease. It is necessary to consider what a reasonably minded tenant of the relevant user class would reasonably require in December 1984 to render the building fit for occupation for the purposes contemplated by the lease, being an industrial building with ancillary offices (West wing and first floor of East wing) and offices on the 2nd and 3rd floors of the East wing and a wholesale warehouse or repository on the ground floor of the East Wing.’