P & O Property Holdings Ltd and Another v The Secretary of State for the Environment
| Jurisdiction | England & Wales |
| Judgment Date | 07 February 2000 |
| Judgment citation (vLex) | [2000] EWHC J0207-8 |
| Date | 07 February 2000 |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case numbers: 1997 ORB 291 and 292 |
[2000] EWHC J0207-8
In The High Court of Justice
Technology and Construction Court
His Honour Judge Thornton Q.c.
Case numbers: 1997 ORB 291 and 292
Mr Michael Barnes Q.C. and Mr John Male appeared for the claimants instructed by Speechley Bircham, Bouverie House, 154 Fleet Street, London, EC4V 2HX (Ref: GSL/125134/240505�1)
Mr Paul Morgan Q.C. and Mr Anthony Radevsky appeared for the defendant instructed by Titmus Sainer Dechert, 2 Serjeants' Inn, London, EC4Y 1LT (Ref: LP352/P509�003)
Dates of Hearing: 6, 8, 9, 13, 14, 15, 20 and 21 December 1999
This judgment determines certain issues arising in two dilapidations' claims brought by the claimants against the defendant. The issues and the answers given to questions that they raise are set out in paragraphs 35, 62, 64, 106 and 136 below.
INDEX
| Section | Title | Paragraph Numbers |
| 1. | Introduction | 1 - 26 |
| 1.1. | General Outline of the Dispute | 1 - 3 |
| 1.2. | The Claims | 4 - 8 |
| 1.3. | Summary of the DoE's Defences | 9 - 10 |
| 1.4. | The Two Underleases | 11 |
| 1.5. | The Relevant Terms of the Leases | 12 |
| 1.6. | Relevant Background Facts | 13 - 26 |
| 2. | Section 18(1) of the Landlord and Tenant Act 1927 | 27 - 34 |
| 2.1. | Introduction | 27 - 29 |
| 2.2. | The Second Limb | 30 - 32 |
| 2.3. | The Section 18(1) Issues | 33 - 34 |
| 3. | Issue 1 �Complete Demolition | 35 |
| 4. | Issue 2 �Structural Alterations | 36 - 62 |
| 4.1. | The Issue | 37 |
| 4.2. | What Remains for Determination at the Second Stage | 38 - 40 |
| 4.3. | What can be Resolved at this Stage | 41 - 43 |
| 4.4. | The Facts | 44 - 58 |
| 4.5. | Findings of Fact �Issue 2 | 59 � 61 |
| 4.6. | Conclusion �Issue 2 | 62 |
| 5. | Issue 3 �Commencement of Repairs | 63 - 64 |
| 6. | Issue 4 �Diminution in the Value of the Reversion | 65 - 106 |
| 6.1. | Introduction | 65 - 71 |
| 6.2. | The Law | 72 - 74 |
| 6.3. | The Basis of any Purchase of the Underlease | 75 - 103 |
| 6.3.1. | The Primary Facts | 75 - 79 |
| 6.3.2. | The Valuation Exercise | 80 - 103 |
| 6.4. | Conclusion �Issue 4 | 104 - 106 |
| 7. | Recovery of Damages for the Tower Block �Issue 5 | 107 - 136 |
| 7.1. | The Issues | 107 - 109 |
| 7.2. | The Contract for Sale and the Transfer | 110 |
| 7.3. | No Loss | 111 - 113 |
| 7.4. | The Effect of the Assignment on the Claim for Damages | 114 - 131 |
| 7.5. | Should Holdings be the Claimant for the Tower Block? | 132 - 133 |
| 7.6. | Conclusion �Issue 5 | 134 - 136 |
| 8. | Overall Conclusion | 137 |
1. Introduction
1.1. General Outline of the Dispute
1. This judgment is concerned with certain issues arising out of two dilapidations claims brought against the Secretary of State for the Environment by two different companies associated with the P & O Group. The two claimants are underlessees of two different parts of a substantial office block. The defendant was the sub-underlessee of both parts pursuant to two sub-underleases until they expired by effluxion of time on 5 March 1997. The defendant is sued in a representative capacity since the two sub-underleases had originally been granted to the Minister of Public Buildings and Works and had, by various subsequent devolutions in the functions of government, devolved onto the Secretary of State for the Environment who held them on behalf of the Department of Education. For ease of reference, I will refer to the first claimant as "Holdings", to the second claimant as "Pension" and to the defendant as "the DoE". Where I am referring to the dilapidations claims in their entirety and it is not material to distinguish between the two claimants, I will refer compendiously to the claimants as "Holdings".
2. The office block, known as Elizabeth House, is situated on a prime site in Southwark, London, SE1 in an area known as the South Bank. This area is located near to Waterloo Station, Waterloo Bridge and the complex which includes the National Theatre, the Festival Hall and the Imex cinema. Elizabeth House is located on the north side of Waterloo International Terminal. It comprises two blocks, each being the subject of one of the underleases and its respective sub-underlease. One block comprises a tower block of seventeen floors and a basement and the other two linked blocks, one of eight and the other of five stories know as the 5 & 8 storey block. The combined floor area of both blocks is about 250,000 square feet.
3. Since there were two sub-underleases, being one for each of the two blocks, two separate claims for damages have been started, one for the Tower Block by Pension and one for the 5 & 8 storey block by Holdings. Pension's interest was in the underlease of the Tower Block but that interest has now been assigned to Holdings and the claim is brought by Pension for and on behalf of Holdings. The DoE disputes Pension's entitlement and ability to recover damages as a trustee for Holdings for any proved breach of covenant in the Tower Block sub-underlease.
1.2. The Claims
4. Holdings gave detailed and prolonged consideration to the question of what should be done with Elizabeth House before and after the sub-underleases had expired. Holdings ultimately decided that the only practical way of dealing with Elizabeth House was to carry out all the extensive repair and reinstatement work which it alleged that the DoE had not, but should have, undertaken. This was because neither redevelopment nor the refurbishment of Elizabeth House were practicable, feasible nor economic possibilities either in 1997 or in the foreseeable future thereafter.
5. The repairs, as Holdings saw the situation, were required of the DoE and were necessary to enable Elizabeth House to be relet. The repair work was finally started in December 1999. Holdings asserted that the state of the suspended ceilings, partitions and floor coverings was such that these had to be stripped out and the ceilings and floors replaced. Holdings also alleged that many of the windows had to be removed and renovated and the convectors, electrical lighting and other mechanical services repaired. Holdings also suggested that this work would expose asbestos-based materials which had been used in the construction of the blocks and which were, prior to any repairs being undertaken, fully embedded in the structure so as to prevent asbestos fibre emission into the atmosphere. Thus, as a direct consequence of the dilapidations repairs, the asbestos had to be removed.
6. The DoE contended that the repairs, already started by Holdings by the date of the trial, were not being carried out for genuine commercial reasons but were instead being undertaken for cosmetic reasons so as to give a spurious authenticity to Holdings' claims. According to the DoE, Holdings' overall intention for Elizabeth House once claims had been determined or settled was to demolish and redevelop it in its repaired state or to carry out substantial further structural alterations.
7. As a variant of this case, the DoE also contended that, throughout the relevant period starting at or soon after 5 March 1997, both Holdings and Pension had intended to remove and replace or repair the ceilings, partitions, window frames, light fittings and floor coverings, having also removed any asbestos exposed by this work. Most of this work was not required to remedy the DoE's repairing and reinstatement obligations but was, instead, work of structural alteration to Elizabeth House. The repairs needed to remedy the DoE's breaches of covenant would, in consequence, be subsumed into the overall scheme of structural alteration that was already contemplated and the repairs actually necessitated by DoE's repairing obligations would be rendered valueless by these structural alterations.
8. As a yet further variant of its defence, the DoE contended that the breaches of covenant had only caused a minimal diminution to the value of the underleases and that that sum represented the limit on any recoverable damages.
1.3 Summary of the DoE's Defences
9. In summary therefore, the DoE challenged Holdings' claims on four broad grounds:
1. Many items of claim were not concerned with breaches of the repairing and reinstatement obligations of the sub-underleases at all. Further, many were outside the ambit of those obligations because they constituted structural alterations.
2. Holdings had not started the repairs for genuine commercial reasons but so as to provide a spurious authenticity to its claims against the DoE.
3. Section 18 of the Landlord and Tenant Act 1927 precluded recovery of most of the sums that were claimed because of Holdings' prior intention to undertake structural alterations and because the cost of repair would greatly exceed the statutory limitation on recoverable damages.
4. The lessor of the sub-underlease of the Tower Block was Pension who had assigned its interest in the relevant underlease to Holdings. It was alleged that Pension, in consequence, neither suffered the claimed loss nor was entitled to recover it on behalf of Holdings.
5. The damage to the underleases was minimal and was not reasonably reflected in the cost of repairing the DoE's outstanding breaches of covenant.
10. Holdings' claims are currently quantified at about �10.2 m. Since the factual disputes were so extensive, the parties agreed that certain issues of principle should be resolved before these factual disputes are resolved. These issues were intended to assist in shortening the overall length of the trial. Although the list of issues drafted by the DoE and agreed to by Holdings was extensive, the issues can be shortened into 4 broad issues arising out of the DoE's defences. These issues are those concerned with...
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