A lease sets out the contractual liabilities of a occupier, including its obligations to repair and maintain a property. If a occupier is in breach of its obligations at expiry of a lease, a owner can seek damages to compensate it for any loss suffered.
In the case of covenants to repair, at common law the assessment of damages is the difference in value of the reversion at the end of the lease between the premises in their then state of disrepair and in the state in which they would have been if the covenants had been fulfilled.
In one noteworthy case, Shortlands Investments Ltd v Cargill plc 1995, the Court accepted the view that if the value of the premises is negative value in repair then it is more negative out of repair and considered that the best possible guide in the assessment of the owner’s loss was the cost of works.
The recent case of Consortium Commercial Developments Ltd v ABB Ltd 2015, initially this appears to reject this approach. In this case the owner argued that the diminution in value of its reversionary interest was the same as the cost of remedial works. However, the owner had not undertaken any works as it did not wish to expend its own resources and took a longer term view that it may be better to wait for the market to improve to achieve a better rent. The Court determined that a “pound-for-pound” approach in considering diminution was not appropriate in the circumstances where any additional rent achieved for the premises in a state of repair is limited by the market. However, it reiterated the basis of the Shortlands judgement that where the owner undertakes the works, or reasonably intends to do so, the measure of damages will be the cost of works.
In Car Giant Ltd v The London Borough of Hammersmith 2017, the Court reinforced the approach set out in both earlier cases and determined that where work has been carried out, the cost of such work is prima facie evidence or a very real guide to the damage to the reversion. Where works were not implemented the Court referred to Latimer v Carney 2006 and concluded that the failure to demonstrate intent to carry out works was an indication that the repairs were not strictly necessary.
All three cases demonstrate the consistent view of the Courts that the cost of works carried out or clearly intended to be carried out represent the measure of the owner’s true loss. In other words, having spent a pound on repair, a owner is entitled to recover a pound as damages.
