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Tenant Pays £1.3 Million Price of Breaching Repair Obligations

OfficeIn a striking cautionary tale for occupiers of commercial property, the tenants of a Central London office block who left it in a very poor state of repair when they moved out have been landed with a £1.3 million bill for the repairs and renovations needed to put the premises back into a condition suitable for re-letting.

Although the lease imposed comprehensive repairing obligations on the tenants, the block was left in a serious state of disrepair when they vacated. After carrying out very substantial works in order to make the premises fit for the market, the landlord sued the tenants to recover the cost of those works.

The High Court assessed the landlord’s damages at £1,353,254, that representing the cost of the repairs, plus loss of rent during the period in which they were carried out. The Court rejected the tenants’ arguments that certain of the works, including replacement of the roof and boilers, had gone beyond what was necessary.

The Court also found that the statutory cap on such awards contained within Section 18 of the Landlord and Tenant Act 1927 should not apply because the diminution in the value of the landlord’s reversionary interest arising from the tenants’ breaches of covenant exceeded the cost of the necessary works.

In challenging that decision before the Court of Appeal, the tenants argued that the impact of the breaches on the value of the reversionary interest had been over-estimated and that the statutory cap should therefore have applied to limit the amount of the award.

However, in dismissing the appeal, the Court found that the award accurately reflected the cost of the works that had to be carried out in order to put the premises into the condition in which the tenants ought to have left them. The judge’s assessment of expert evidence when valuing the impact of the breaches on the reversionary interest also could not be faulted.