Dilapidation claims: a reminder of a tenant’s obligations

A tenant who argued that any money spent on refurbishments would have been wasted because the landlord would have needed to spend even more to upgrade the premises to modern standards has been ordered by the Court of Appeal to pay the landlord £1,353,254, together with 3% interest for each year since expiry of the lease.

Sunlife Europe Properties Ltd v Tiger Aspect Holdings

In the recent CA decision in the case of Sunlife Europe Properties Ltd v Tiger Aspect Holdings (2013) EWCA Civ 1656. (Court of Appeal, 17^th Dec 2013), Tiger Aspect Holdings appealed the first instance decision and argued for a reduced valuation. The CA disagreed.

Tiger faced a dilapidations claim in excess of £2 million after vacating commercial premises it had occupied from 2000 to 2008. The landlord, Sunlife Europe Properties Ltd, had to carry out significant work to refurbish the premises to a sufficient standard to be able to re-let the premises.

There was no dispute that Tiger, and its predecessors under the lease, had failed to comply with repairing obligations under the leases. The case therefore turned on the amount of damages to be applied.

The case raised three principal issues. First, to establish the scope of Tiger’s obligations under the covenants in the lease. Second, to establish the reasonable cost of restoring the building to the condition it should have been had Tiger fulfilled those obligations. Third, to establish the difference between the value of the building at the expiry of the lease and its value had Tiger performed its obligations.

Proudfoot v Hart

Proudfoot v Hart (1890) 25 QBD 42 is an established authority which confirms that Tiger’s obligation was “to keep the premises in such repair as, having regard to the age, character, and locality of the building, would make it reasonably fit for the occupation of a tenant of the class who would be likely to take it”.

At first instance, the judge found that Tiger was required only to refurbish the building to a level it would have been at the time the lease was entered into. However, Tiger did not succeed in persuading the judge that money spent on refurbishments would have been wasted because Sunlife would have needed to spend even more to upgrade the premises to modern standards. This argument is known as “supersession” and the judge explained it as follows: “This additional work may make worthless some of the work that would have been necessary to put the building into repair with the result that, if such work has not been done, the landlord has suffered no loss and accordingly cannot recover any damages in respect of that breach.”

The judge was persuaded that there were damages owed to Sunlife for their refurbishments. When it came to valuing the cost of the damages to be applied, Tiger had argued that a “residual valuation” should be made. A residual valuation is valuing a building following refurbishments and deducting the cost in time and money spent. Instead, in reaching a decision, the judge looked at each individual item on the schedule of dilapidations before deciding which refurbishments Tiger should have carried out. The Judge did, however, decide that some of Sunlife’s refurbishments were more than would have been required for Tiger to comply with its covenants.

The following are the main points that arise from the judgment in relation to dilapidations claims:

1. Where a landlord claims the costs of refurbishments that are necessary to remedy dilapidations arising from a tenant’s breach of the relevant covenants, a landlord will recover those costs in full.
2. Where a landlord claims the costs of refurbishments that the tenant would not have been required to do under the terms of the lease, but which were required as a result of the breach of the relevant covenants, then a landlord can recover an adjusted cost.
3. A landlord cannot recover costs where the refurbishments are disproportionate to the outcome achieved by the cost of carrying out the works.

Redress Law specialists advise and pursue all matters relating to landlord and tenant disputes. If you have any questions that relate to the above case, or want to discuss a situation that falls within property negligence, please don’t hesitate to get in touch with our friendly and helpful team.