Life With The New Protocol: The Diminution Question

One of the key advents of the new dilapidations protocol was the formal acknowledgment for the first time of the steps that the parties to a dilapidations dispute must take to demonstrate the comparison between the cost of repairs and the diminution in value of the landlord's reversion.

As is made clear by paragraph 9.1 of the protocol:

"Prior to issuing proceedings, the landlord should quantify its loss by providing to the tenant a detailed breakdown of the issues and consequential losses based on either a formal diminution valuation or an account of the actual expenditure or, where it has carried out some but not all remedial action, a combination of both; unless, in all the circumstances, it would be unreasonable to do so".

Although the initiating events pre-dated the introduction of the new protocol, the case of Sunlife Europe Properties Limited -v- (1) Tiger Aspect Holdings Limited (2) Tiger Television Limited [2013] EWHC 463 (TCC) represented the first substantial dilapidations dispute to be considered in the new protocol world that addressed the diminution question. Accordingly, it represents a window into the likely approach to be taken by the judiciary when analysing dilapidations claims going forwards.

Key to that case was a consideration of the cap placed on dilapidations claims by section 18 of the Landlord and Tenant Act 1927 ("the 1927 Act").

Section 18(1) of the 1927 Act provides that:

"Damages for a breach of a covenant or agreement to keep or put premises in repair during the currency of a lease, or to leave or put premises in repair at the termination of a lease, whether such covenant or agreement is expressed or implied, and whether general or specific, shall in no case exceed the amount (if any) by which the value of the reversion (whether immediate or not) in the premises is diminished owing to the breach of such covenant or agreement as aforesaid; and in particular no damage shall be recovered for a breach of any such covenant or agreement to leave or put premises in repair at the termination of a lease, if it is shown that the premises, in whatever state of repair they might be, would at or shortly after the termination of the tenancy have been or be pulled down, or such structural alterations made therein as would render valueless the repairs covered by the covenant or agreement."

The Facts

In the instant case, the Claimant, Sunlife, was the owner of combined office and retail premises in London. The premises had been let by Sunlife's predecessors in title to the predecessor in title of Tiger Television Limited ("TTL") under two leases with full repairing covenants. Tiger Aspect Holdings Limited ("TAH") was the guarantor under the leases. The term of both leases was due to expire on 24 March 2008 and Sunlife purchased the reversions in May 2006. However, both tenancies were subject to request for new tenancies by TTL. However, TTL subsequently changed its mind so that those tenancies came to an end on 14 November 2008 when TTL moved out.

In early October 2006 Sunlife arranged for the preparation of an interim schedule of dilapidations by Ian Feasey ("IF") of Lambert Smith Hampton. IF inspected the premises whilst they were still occupied by TTL. The schedule he prepared at that time showed a total cost of putting the premises into repair at approximately £740,000.

IF inspected the premises again in November 2008, just after TTL had vacated them...