Under Section 18(1) of the Landlord and Tenant Act 1927 damages for breach of a repairing covenant are:

1. Limited to the diminution in value of the landlord's reversion caused by the breach (First Limb);
2. Not recoverable when it can be shown that whatever the condition of the property, demolition or serious structural alterations are to be carried out at the end of the term, which would render any repairs valueless, this is known as supersession (Second Limb).

Case Facts

Peachside was a terminal dilapidations claim in relation to a business tenancy concerning part of a former textile warehouse located in central Manchester, used as restaurant premises.

The tenant vacated in March 2021. The premises were in a serious state of disrepair which had previously led to a Section 146 notice being served in October 2020.

The Claimant's case was that it had initially attempted to let the premises in their existing state, but on advice, decided that:

1. They were unlettable in their current state;
2. Substantial and expensive works would be needed to put them in repair for re-use as a restaurant, but this was not economic, as restaurant demand in the area was low; and
3. The best case was to re-let the premises as a commercial office space.

The Defendant argued:

1. The works carried out by the Claimant were unnecessary and/or involved betterment;
2. The cost of the works exceeded the diminution in value of the landlord's reversion (First Limb); and
3. The Claimant intended to redevelop the whole property so the repairs would be valueless (Second Limb).

The Claimant proposed to carry out the works in two phases. The first phase involved repairs to the premises, with the second phase including the installation of a new passenger lift in order to redevelop the premises into an office space. The Defendant argued these proposals were an elaborate charade to try and extract as much money as possible from them, arguing that the premises could not be successfully converted to office space due to difficulties with access.

The Court had to weigh up:

1. The necessity and reasonableness of the works;
2. Whether the Claimant's intention to redevelop was genuine; and
3. Whether the Claimant's intention to prioritise installing a new passenger lift over restoring the dilapidated goods lift was reasonable;

Decision

By the time of the hearing, the Claimant had carried out the first phase works. It was revealed in the proceedings the Claimant did not have funds to restore the dilapidated goods lift and install the new passenger lift. The Judge was not persuaded that these works would in fact be done.

The Judge did however find that in repair, the premises would command a reasonable rental for office accommodation, such that it was reasonable for the Claimant to undertake the first phase repairs as and when it did.

The Court therefore found in favour of the Claimant, save for the goods lift issue. The Judge viewed the award did not exceed the statutory limit under the First Limb and, on the facts put to the court, the Second Limb was not engaged.

It is important to ensure steps are taken as early as possible, if you are a commercial tenant, to ensure compliance with the repairing and yield up covenants in a lease, prior handing back the premises, to minimize any claim the landlord may have. Where premises are left in a dilapidated state by an outgoing tenant, landlords should take professional advice, prior to carrying out any extensive or expensive works, as to the sums they may be entitled to claim in damages for breach of the repairing covenants.