Background
The claimants owned a two-storey office building in Dartford that had been leased to Westbury Homes (Holdings) Limited, with Westbury Limited acting as surety. The lease expired on 8 July 2023. It required the tenant to keep the premises, including their heating, ventilation and air-conditioning system, in good and substantial repair and condition and to yield them up consistently with full performance of the tenant’s covenants.
After expiry, the landlords brought a terminal-dilapidations claim seeking the cost of remedial works, lost rent and professional fees. The principal disputes concerned the condition of the HVAC system, whether the landlords’ plan to replace that system superseded less extensive repairs, and whether section 18(1) of the Landlord and Tenant Act 1927 limited the recoverable damages.
The Court’s Holding
Judge Keyser KC held that the HVAC system was out of repair but could have been restored to the contractually required condition without complete replacement. Although the landlords would probably have replaced the system even if the tenant had performed the necessary repairs, that intention did not extinguish the common-law claim for the reasonable cost of repairing the tenant’s breaches. The statutory rule concerning intended demolition or structural alteration did not apply, while the first limb of section 18(1) still capped damages at the diminution in the value of the reversion.
For valuation purposes, the court found that a hypothetical purchaser would have accepted a properly functioning repaired HVAC system rather than replacing it. The court rejected the landlords’ consequential claim for lost rent because the disruption and resulting loss would have occurred anyway during their planned improvement works, so it was not caused by the tenant’s breaches. It allowed recoverable professional and related fees and awarded total damages of £648,141.47, leaving interest and costs to be agreed or determined separately.
Key Takeaways
- A landlord’s intention to undertake more extensive works does not, by itself, eliminate the common-law cost-of-repair claim where section 18(1)’s demolition or structural-alteration provision does not apply.
- A tenant must return plant in proper working repair, but ordinarily need not provide new equipment or upgrade a repairable system merely because replacement would better suit the landlord’s plans.
- Consequential losses remain subject to ordinary causation principles and are not recoverable if they would have arisen from the landlord’s planned improvements regardless of the tenant’s breach.
Why It Matters
The decision separates the primary measure of dilapidations damages from consequential-loss analysis. Even planned replacement may not defeat a repair-cost claim, but it can prevent recovery of rent losses that the landlord would have incurred in any event.
It also illustrates how section 18(1)’s diminution cap depends on the likely conduct of a hypothetical purchaser and the extent to which repair items would survive, rather than be superseded by, market-driven refurbishment.