Checking out dilapidations

Louise Clark explains how a recent case involving a hotel offers a useful reminder of key principles in terminal dilapidations – and a lesson in expert evidence. Key points A landlord is entitled to recover the costs of putting the premises in the condition in which they should have been delivered up, subject to the statutory cap The standard of repair will vary depending on the age, character and locality of the property An expert’s role is to provide impartial opinion to assist the court, not to act as advocate for its client In a rare decision concerning a claim for terminal dilapidations, the High Court has considered the appropriate standard of repair of a hotel. The judgment in Coldunell Ltd v Hotel Management International Ltd [2022] EWHC 1290 (TCC) reviews the key principles for determining dilapidations claims and highlights, once again, the inherent dangers of expert evidence. The claimant was the former freeholder of the Mitre Hotel in Surrey. The defendant, a well-known hotel operator, vacated the property in September 2016 having occupied for more than 20 years. The claimant sought £1.08m in damages for breach of the defendant’s repairing obligations, of which £465,000 had already been incurred. The property was sold in January 2020 for £6.96m. The standard of repair The defendant’s lease required the property not to be used other than as a high-class public house and hotel with restaurant, banqueting and conference facilities. The defendant was obliged to keep the property “in good and substantial repair and condition” and to yield up the property at lease end “decorated repaired cleaned and kept” in accordance with the lease covenants.  The standard of repair for compliance with the defendant’s obligations was agreed in principle as the test in Proudfoot v Hart [1890] 25 QBD 42 – such repair as, having regard to the age, character and locality of the premises, would make them reasonably fit for the occupation of a reasonably-minded tenant of the class likely to take them.  The standard of repair set by the court was that of a 36-bedroom “high-class” hotel, restaurant and public house, fully refurbished to a high standard when let, properly maintained and situated in an historic 17th century Grade II listed building with later additions, located on the banks of the River Thames opposite Hampton Court Palace. Damages The measure of damages for breach of a repairing covenant is the reasonable cost of the works required to put the property into the condition it ought to have been when delivered up – whether undertaken by the landlord or not (Joyner v Weeks [1891] 2 QB 31), subject to the cap imposed by section 18 of the Landlord and Tenant Act 1927.  Section 18 provides that damages for breach of a covenant to repair shall not exceed the diminution in the value of the landlord’s reversion as a result of the breach. The established approach to assessing diminution in value is to carry out two valuations of the property: first assuming the property is in a state compliant with the tenant’s obligations, and secondly on its actual state and condition. The difference between the two is the damage to the reversion. There is also a debate as to whether the common law measure of damages in relation to covenants of repair is subject to the rule in Ruxley Electronics Ltd v Forsyth [1995] EGCS 117, that the cost of undertaking works is only recoverable if it is proportionate to undertake them. The judge considered this to be irrelevant because the costs claimed were not out of all proportion to the benefit to be obtained by undertaking them. Expert evidence In determining the claim, the court heard evidence from experts in building surveying and valuation.  The claimant’s building surveyor was familiar with the property, having inspected on numerous occasions over the years. He had personal knowledge of what works were required and why, as contracts administrator for the remedial works. He gave evidence in a forthright and measured manner, accepting the limits of his knowledge and making concessions where appropriate. The fact that he was acting in a dual role in relation to the dilapidations claim and the repair works did not, in the court’s view, compromise his expert opinion.  The defendant’s building surveyor regularly acted in adjudications but this was the first time he had given evidence in court. He had not inspected the property and took what the court considered to be a slapdash approach to its condition, basing his opinion on a limited number of photographs in reports commissioned by the defendant and ignoring the contemporaneous record of the condition of the property made by the claimant at lease end. He argued his client’s case – referring repeatedly to “our case” – and disregarding the merits of the arguments he advanced rather than providing expert opinion. Several of his opinions and costings lacked credibility or – in the case of boilers that he claimed were in good repair – were contradicted by the evidence. Consequently, the court was unable to place any reliance on his evidence.  There was a disagreement between the valuers as to whether the hypothetical purchaser would undertake a limited refurbishment – replacing the en suites – as the claimant’s expert contended, or carry out a full refurbishment, as the defendant’s expert argued. The claimant’s valuer had produced two valuations of the property in and out of repair, and concluded that the diminution in value of the property was £1.3m. The defendant’s valuer produced three valuations of the property in its actual condition with different assumptions as to lease compliance and the works to be undertaken. The valuations could not be compared and the court preferred the claimant’s valuer’s evidence. The decision The statutory cap did not bite and the claimant established the majority of its claim. Louise Clark is a property law consultant and mediator Photo © Copyright Philip Halling and licensed for reuse under this Creative Commons Licence