Professional Dilapidations Advice Saves Tenant Over £5million

Online, June 13, 2013 (Newswire.com) - Hammersmatch, the landlord of a 1930's industrial building in Welwyn Garden City claimed against Saint Gobain, the tenant and the lease guarantor, to recover the costs of works and fees amounting to £6.8m as detailed in a schedule of dilapidations they had served on the tenant in December 2008.

Over the period 1999 to 2008, there had been various discussions in relation to the building being redeveloped, which had progressed as far as an application for planning permission made by Hammersmatch, which was subsequently refused.

A letter of claim pursuant to the Dilapidations Protocol was served on Saint-Gobain in January 2010, referring to a claim of £6.8m. Proceedings were issued and served in June 2011. The parties' respective experts had agreed that the cost of building fabric dilapidations amounted to £1,785,578.15, and the Mechanical and Electrical Engineers had agreed that the cost of mechanical and electrical dilapidations amounted to £435,926 but some works to boilers and lifts were still disputed.

On the evidence, the Court found that two boilers needed to be replaced and three could be repaired, at a total cost of £33,500. Repairs were required to be carried out to switch panels at a cost of £53,000. The passenger and goods lifts were in need of repair, at a total cost of £91,100. Added to the agreed figure for the cost of building fabric dilapidations of £1,785,578.15, and the agreed cost of the Mechanical and Electrical dilapidations of £435,926, the Court held that the cost of the works which Saint-Gobain should have carried out under the lease amounted to £2,399,104. To this figure the Court added an allowance for fees, supervision costs, financing costs and applied a risk and management allowance of 15% - giving an overall total of £3,087,712.

The Court considered the ability of Hammersmatch to recover the costs of the works and fees, or whether in the facts of this case the statutory cap would apply. The Court held that the claim for dilapidations would be limited by section 18(1) of the Landlord and Tenant Act 1927 to the value of the diminution of the reversion. In order to establish the appropriate standard of repair, the Court took into account the age, character and locality of the building and noted that a tenant's obligation is not to return the premises to the condition that they were in at the start of the lease.

The Court then considered whether and to what extent the breaches of covenant on the term date resulted in a diminution in the value of Hammersmatch's freehold reversion on that date. The starting point was the value of the property in repair, which the Court held to be £3,061,251. The costs of putting the property into repair therefore exceeded the value of the property in repair. The Court accepted Saint-Gobain's submission that once the resulting figure for the costs of the works falls below the site value, then the diminution in value is the difference between the "in repair" value and the site value. The Court found on the evidence that the site value amounted to £2.1m. The Court rounded down the value of the property in repair to £3m, and held that the diminution in value amounted to £900,000 and that the landlord was entitled to recover interest at 4.5% per annum from the term date of 28 December 2009 and on the schedule costs (£20,320.40).

Hammersmatch's damages were therefore limited by section 18(1) of the Landlord and Tenant Act 1927 to the value of the diminution of the reversion at £900,000, plus the costs of the schedules at £20,320.40 and to interest at 4.5% per annum.