Breach of a repairing covenant

A recent case emphasised that the traditional approach of assessing damages prevails: tenants cannot rely on making offers which may have no substance as a way of getting around dilapidations claims. Nick Cox reports.

The Facts

Van Dal Footwear Limited let a retail unit to Ryman Limited under the terms of a commercial lease. At the end of the lease, Ryman made a number of offers to take a new lease on slightly different terms, as is quite usual.

These were rejected by the landlord and Ryman vacated on the expiry date leaving the property in disrepair. Van Dal claimed damages of over £200,000.

In an attempt to avoid the damages claim, Ryman re-stated their wish to take a new lease on similar terms to their previous final offer—whether from the landlord or from any new freeholder to whom the landlord might sell the freehold.

Van Dal rejected these offers and went ahead with proceedings to enforce the claim for damages as a result of the breach of the repairing covenant. At the trial six months later, the judge went through the claim and assessed the damages at £130,000. He was then asked to assess the difference in value between the property in and out of repair (as required by section 18 of the Landlord and Tenant Act 1927).

Ryman argued that they were still waiting in the wings to take a new lease and therefore Van Dal would not suffer a loss to the freehold value as either they, or any new purchaser, would have a rent stream from day one of the new lease. Ryman’s counsel argued that, on the basis of the offer to take a new lease which a hypothetical purchaser would consider, there was no loss. The judge agreed and assessed the loss at nil. Was he correct?

The appeal court said he was not. Although he had approached the question of the claim quite properly, assessing the damages in and out of repair, then looking at the statutory cap, he had erred in assuming that the valuation of the property was affected by Ryman’s offer to take a new lease.

The value should have been assessed as at the term date of the lease on the basis of the condition the property was in on that date when Van Dal recovered it. There was no binding contract to take a lease, and the offer only re-stated what had already been rejected. The hypothetical purchaser could not be inferred to be in a better position.

For more information contact Nick Cox  nick.cox@willans.co.uk

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