Dilapidations And Damages At Lease End

The recent decision of the High Court in PGF II S.A. and Another v. Royal and Sun Alliance Insurance Plc and Another contains a useful summary of the law relating to a claim for damages for breach of a tenant’s repair obligation at the end of the lease.

The issue here was the amount of damages and, in particular, whether the defendants, a tenant and sub tenant, were liable for the costs of the extensive refurbishment that the landlord had carried out. Under Section 18 of the Landlord and Tenant Act 1927, damages for a breach of a repairing covenant must not exceed the reduction in value of the landlord’s interest in the premises. In particular, no damages are recoverable for a breach of a tenant’s repair covenant if the landlord would have demolished the premises or made such structural alterations as to make the repairs valueless. This is known as the statutory cap.

The law is as follows:
•Assess the loss sustained by the landlord as at the date of the termination of the lease.
•The landlord may not recover damages for dilapidations if, at the end of the lease, he intends to demolish the premises or make such structural alterations so as to render any tenant repairs valueless.
•If the landlord has not reached a decision at that time but there is only one reasonable decision which he could take, damages will be assessed on that basis.
•The fact that there may be some development potential in the future is irrelevant
•The damages awarded cannot exceed the value by which the landlord’s interest in the property is diminished at the termination date because of the breach.
•If there is no immediate intention to redevelop if the premises are repaired, damages should include the value of having the property available for re-letting.
•The standard of repair is what is reasonable in all the circumstances, including the locality and age of the building.
•Where the landlord would have carried out the same repair / refurbishment works even if there had been no breach, he can recover the cost of the works which the tenant should have carried out to the extent that they would not have been rendered valueless by the carrying out of the landlord’s works.
•Loss of rent will only be awarded where the landlord can prove actual loss because of the breach. In today’s weak market. if the premises would have remained empty, no claim for loss of rent will be upheld.

If you would like to know more about dilapidations and damages, please contact Caroline Wilton or Martin Banham-Hall.

Filed: 09/11/2010 08:20:56