How can landlords make sure they can claim for the diminution in the value of their reversion when the lease of a dilapidated property comes to an end? Doing no work but hoping to claim was not a successful strategy for the landlord in the case of Car Giant Limited and Acredart Limited v The Mayor and Burgesses of the London Borough of Hammersmith. Landlords who elect, for whatever reason, not to carry out some or all of the works of repair for which a tenant is properly liable at the end of a lease term, run the risk that their claim for diminution to the value of the reversion will be lost.
It is well established that landlords can successfully claim for losses where they do carry out repair works for which a tenant was liable and the cost of those works is a very real guide to the recoverable loss. If the landlord hasn't yet done the works, but can prove that he really intends to do works, then claims can succeed but often the tenant tries to prove that the recoverable cost is less than the landlord's estimated cost of the works.
In the Car Giant case, which concerned 35 units on a secondary industrial site in Willesden, some works had been done by the landlord after the tenant's 25 year lease expired and the court was able to value the loss in respect of those works, but no explanation was given as to why other works had still not been carried out even 6 years after lease expiry. Crucially, no evidence was given as to when or if they would ever be carried out. The units had been let in the meantime, all of which strengthened the court's view that the works could not have been important or necessary to maintain the value of the asset.
The judge was not impressed by the landlord's valuer's argument that the hypothetical purchaser would have derived a value for its bid based on the cost of remedying all defects, especially in light of Car Giant's actions and inactions, which threw more light on the value of the reversion than pure hypotheses. The judge also noted that allusions by counsel to the reasons for Car Giant not carrying out the works could have been helpful to their case if only they had been supported by evidence. On the limited evidence, the court was only able to award damages based on the cost of the works actually carried out and nothing at all in respect of the disrepair that still remained.
Landlords who wish to bring a claim for loss where they have elected not to do some or all of the repair works must ensure that they have robust evidence to substantiate and justify that decision.
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