Cap on damages for disrepair

5 February, 2014
by: Cripps

One of the most contentious points arising at the end of a lease, is the amount of damages which a landlord may be able to recover, as compensation for any disrepairs at the property.  The recent case of Sunlife Europe v Tiger Aspect Holdings [2013] serves as a useful reminder of some of the principles.

 

Where a property requires repair at the end of a lease, the starting point is that the landlord is entitled to recover the cost of consequential repairs, plus loss of rent for the period during which repairs are undertaken.  However there is a statutory cap on what the landlord can recover.  Under section 18 of the Landlord and Tenant Act 1927, the landlord may recover no more than the reduction in value of the landlord’s property, caused by the disrepair.

 

Sunlife concerned a lease to Tiger Aspect Holdings, the TV production company behind hits such as Mr Bean and The Vicar of Dibley.  The case involved an appeal from an earlier judgment.  The earlier judgment found that the cost of repairs to Tiger’s premises was just under £1.4 million.  The reduction in value of the landlord’s property was found to be just over £1.4 million, so on this analysis the section 18 cap did not apply.  Tiger appealed, challenging the basis on which the reduction in value had been calculated. 

 

The judgment picks up on a key issue which can arise in claims for disrepair.  In order to make the premises suitable for reletting, it may not be sufficient for the landlord to simply have the premises handed back in good repair.  It may be necessary to upgrade or improve them.  The cost of those upgrade works would not normally be recoverable from the tenant.  Additionally, if the upgrade works duplicate some of the repair works, the landlord has not suffered any loss from that element of disrepair.  This is known as “supersession”. 

 

Although the court had found that there were elements of supersession in the works which the landlord had undertaken, it concluded that the reduction in value was essentially the same as the cost of the repair works.  In other words, a prospective purchaser of the landlord’s property would simply reduce their bid by an amount equal to the cost of the necessary repairs.

 

The statutory cap is undoubtedly of great assistance to many tenants.  But this case highlights its potential shortcomings. 

 

Reviewed in 2015