PROVING THINGS 57: LEASE SAID SOONEST MENDED: CLAIM FOR SUBSTANTIAL DAMAGES FAILS (AND GUESS THE REASON)

March 12, 2017 · by · in Civil evidence, Damages

This series  often looks  at cases that have floundered at trial –  usually because of the absence of basic evidence to prove a litigant’s case. This can be seen again in the judgment of Mr Stephen Furst QC in Car Giant Limited -v- the Mayor and Burgesses of the London Borough of Hammersmith [2017] EWHC 197 (TCC). (I did not anticipate that this series would cover so many cases, or be so regular – what that says about the state of civil litigation is for others to judge).

“These all might be good explanations but none of them are supported by evidence; I cannot assume those matters particularly where, as was common ground, the burden of proving the diminution in value rests on the Claimants.”

KEY POINTS

The judgment sets out where there was no evidence to support the claimants’ case.  The claimants claimed for the cost of work to be carried out in the future.  There was:-

  • No explanation as to why work had not been carried out (six years after the end of the lease).
  • No evidence that the outstanding works were important or substantial (the fact the properties had been let suggested the opposite)
  • No evidence that the reversion had been diminished by the failure to carry out the work.
  • No evidence that it was the claimants’ financial position that prevented the work from being carried out.
  • No evidence that there was a “rolling programme” of repairs.
  • No evidence that the claimants were holding back expenditure because the defendant was withholding payment.
  • No evidence to support the sum claimed for the preparation of a schedule (the evidence supported a smaller sum).
  • No evidence to support a claim for professional fees.

THE CASE

The claimants brought an action for dilapidations at the east of a lease. The lease came to an end in February 2011.  It was agreed that there were breaches of the repairing covenants.  It was also common ground that damages were to be assessed by reference to the diminution of the value of the reversion attributable to those breaches.  The claimants asserted that the diminution of the value was £500,000.  Both sides called experts and the judgment contains a detailed assessment of the arguments.  However the most interesting aspect of the judgment (from our point of view) is where the judge considers the claimants’ case in relation to the evidence called.

THE JUDGMENT

The judge reviewed the expert evidence and then considered the correct approach.

“The correct approach
    1. It would seem to me that the correct approach in a case such as this is properly summarised in Hill & Redman’s Law of Landlord and Tenant(December 2016) at paragraph A[3643]:
“The first step is to identify what works the tenant should have done and then to establish the breaches and what remedial work is necessary to remedy them. The landlord’s interest is then valued as at the date of termination of the lease on two bases: first, on the assumption that the premises are in the state they should have been in if the tenant had performed his covenant; and secondly on the basis that the premises are in their actual state and condition. The difference between the two valuations is the damage to the reversion. Damages cannot exceed this amount.”
    1. In this case the works that should have been done by LBHF and therefore the breaches of the repairing covenants have been agreed, as has the cost of so doing. Where this work has been carried out the authorities establish that this cost is prima facie evidence or a very real guide to the damage to the reversion. (See Dilapidations: The Modern Law and Practice, 2013 -14 by Dowding and Reynolds, paragraph 30-15.) Equally where the landlord can establish that he really intends to do the repairs then in practice the burden of proving that the damage to the reversion is less than the cost of the works may shift to the tenant (Hill & Redman’s Law of Landlord and Tenant (December 2016) at paragraph A[3644]).
    2. Conversely where the work has not been carried out the position is summarised in Latimer v Carney [2006] 3 E.G.L.R. 13 at [48]:
“The failure to carry out the repairs would clearly be an indication that the repairs were not necessary as the landlords claimed. Put another way, whether sums were actually spent on doing repairs is relevant to the question whether the repairs were necessary or not. If they were not necessary, damage to the reversion could not be inferred from them. But even where the repairs had not been carried out there could be other explanations for the failure that could satisfy the judge that the indication was not well-founded, as where the landlord decides not to repair the property himself but proceeds to sell it at a lower price than he could have obtained if the repairs had been remedied.”
    1. In this case both propositions apply, some work has been carried out and some work has not. I see no reason why I should not accept that, as regards the work in fact carried out, this represents or is equivalent to a diminution in value in the reversion. For the reasons I have already given I calculate this as £93,635, in respect of the vacant units, plus £71,647 for the occupied units, plus £5,491 in respect of drainage; a total of £170,773. I reduce this sum by the amount that the hypothetical purchaser might reasonably assume would be recoverable from the “holding over” tenants i.e. £10,000 as assessed at paragraph 27 above. However this figure has to be increased to allow for financing; once again I allowed £25,000 but this was calculated on the assumption of a budget cost of about £500,000. Taking account of the actual costs expended, I would reduce the financing costs to £5,000. Thus in my view the diminution in value which can properly be deduced from the fact that the Claimants have in fact carried out repair works to the value of about £170,000 is £166,000 (i.e. £165,773 rounded up).
    2. As regards the work not carried out, no explanation has been put forward by the Claimants as to why such work has not been done, some six years after the Valuation Date. No evidence has been called to suggest that such work will ever be carried out and I have no evidence before me to suggest that those outstanding works are serious or substantial; indeed to the contrary, the fact that the units have been let at a market rent suggest that what is outstanding is minor or unimportant. It would seem to me therefore that I cannot deduce or assume that this further element of cost should be taken into account in arriving at the diminution of value.
    3. There is no other evidence before me to suggest that notwithstanding these outstanding repairs the reversion has been diminished by an amount equivalent to or to be derived from the cost of remedying these remaining defects. Mr Outterside’s valuation makes no special assumption in this regard, he merely assumes that the hypothetical purchaser would derive a value based on remedying all the defects. I see no reason to make such an assumption since Car Giant’s actions and inaction after the Valuation Date throw light upon the value of the reversion at that date. (See Dilapidations: The Modern Law and Practice, 2013 -14 by Dowding and Reynolds, paragraph 30-37.)
    4. I should add that it was suggested by the Claimants’ Counsel that the explanation for the Claimants not carrying out some of the works was lack of finance and/or not wishing to disturb the unit holders in occupation and/or that there was a rolling programme of repairs and/or that it was not unreasonable to hold back expenditure when LBHF was resisting payment. These all might be good explanations but none of them are supported by evidence; I cannot assume those matters particularly where, as was common ground, the burden of proving the diminution in value rests on the Claimants.
    5. Accordingly I conclude that the common law assessment of damages attributable to the breaches of covenant by LBHF is £402,887.86 however, by reason of s.18(1) of the 1927 Act, the recoverable damages are limited to £166,000.
Defects Schedule
    1. In addition to the diminution in value, the Claimants claim the fees for the preparation and service of the schedule, claim summary and drainage report in the sum of £21,416.25. The only evidence I have on these heads of claim is as referred to in Mr Lenson’s report where he identifies the sum of £13,125 as being the cost of the preparation of the schedules.
    2. It would seem to me this is a head of loss attributable to the breaches of covenant and therefore properly recoverable.
    3. The only remaining head of claim is for professional fees in the sum of £38,935.84. No evidence has been called in relation to this matter and I therefore make no award in relation to this claim.
Claim
    1. For the reasons given above I therefore assess the Claimants’ recoverable damages in the total sum of £179,125 (£166,000 plus £13,125).
Interest
  1. Interest is claimed pursuant to s.35A of the Senior Courts Act 1981. It is common ground that the interest calculation should start from the Valuation Date. This seems to me a somewhat generous concession on the part of LBHF since the Claimant was not “out of pocket” as at that date and appears to have expended sums carrying out repairs over a number of months or years. Nevertheless in the absence of evidence and in the light of the concession, interest is to run from the Valuation Date.
  2. I have no evidence as to the particular circumstances of the Claimants. I assume that they are normal commercial organisations and probably net borrowers although I have no evidence as to the rate of interest that they paid. In those circumstances I think simple interest at 1% above Base Rate is appropriate.”

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