Sunlife Europe Properties Ltd v Tiger Aspect Holdings Ltd

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Summary
The judgment is available at: [2013] EWCA Civ 1656

The instant proceedings concerned the end of the lease of offices in London (the property). The defendant tenant left the property in very poor condition, despite the lease having contained comprehensive repair obligations. After the defendant vacated the property, the claimant landlord carried out extensive work in order to re-let it.

The claimant then issued proceedings seeking to recover the cost of the work. The conventional way of calculating the diminution in value of a landlord’s reversion caused by a tenant’s breaches of his repair obligations was by valuing the reversion in the state in which it actually was at the end of the lease and comparing that value with the value of the reversion in the state in which it should have been at the end of the lease. The difference between the two values was the diminution in value of the reversion.

The details of the claim and the defendant’s responses to them were set out in a Scott Schedule. It set out the work that the claimant had actually carried out after the end of the lease, and which it alleged that the defendant should have carried out in order to comply with its covenants. Some items were in dispute as to the extent of the work or the amount of the item. Some were in dispute as to liability. Based on the Scott Schedule, each party instructed a valuer and each expert produced a report and a joint statement in which they attempted to distil the points on which they agreed and disagreed. Two of the experts’ four valuations concerned the value of the property in the state in which the defendant ought to have left it.

The judge found that if the defendant had left the property in the state in which it ought to have been left, the claimant would not have carried out the works that it had. He directed himself to answer the following questions: ‘First, what was the scope of [the defendant’s] obligations under the covenants in the two leases? Second, what is the reasonable cost of putting the building back into the condition in which it should have been if there had been sufficient performance by [the defendant] of those obligations? Third, [the defendant] having failed to make sufficient performance of its obligations under the leases, what is the difference between the value of the building in its actual condition at the expiry of the leases and the condition that it should have been in if there had been sufficient performance by [the defendant] of its obligations?’ He assessed the common law measure of damages at £1,353,254 (that being the answer to the second question that he had asked himself). He found that the value of the reversion in its actual condition at the end of the lease was £4,462,000. He found that the value of the reversion in the condition in which it ought to have been was £5,870,000.

Therefore, the diminution in value exceeded the cost of the necessary work, with the result that the statutory cap on the common law measure of damages (which limited damages to the diminution in value of the landlord’s reversion pursuant to s 18 of the Landlord and Tenant Act 1927) did not apply.

He concluded that: ‘the amount of the diminution in value is to be inferred from the costs of the repairs reasonably necessary to make good the loss caused by [the defendant’s] breaches of covenant, there being no satisfactory evidence that it is any lower amount.’ Accordingly, the judge awarded the claimant the cost of the necessary works, plus various incidental items. The defendant appealed against the assessment of the value of the reversion in the condition in which it ought to have been. In so doing, the defendant criticised the judge’s approach to the experts’ valuation reports.

The appeal would be dismissed.

There had been no error in the judge’s reasoning or in his conclusion. On the judge’s findings, if the defendant had left the building in the state in which it ought to have been left, the claimant would not have carried out the works that it had. Further, the judge’s finding had been that the work that the claimant had in fact carried out had been, with some exceptions, the work that the defendant ought to have carried out in order to put the building into the condition in which it ought to have been handed back. Furthermore, the judge’s approach to and use of the experts’ reports could not be faulted (see [16], [37]-[42] of the judgment).

Decision of Edwards-Stewart J 147 ConLR 105 affirmed.