Sunlife Europe Properties Ltd v Tiger Aspect Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Floyd,Lord Justice Longmore |
| Judgment Date | 17 December 2013 |
| Neutral Citation | [2013] EWCA Civ 1656 |
| Docket Number | Case No: A1/2013/0846 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 December 2013 |
[2013] EWCA Civ 1656
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT QUEENS BENCH DIVISION, TECHNOLOGY & CONSTRUCTION COURT
MR JUSTICE EDWARDS-STUART
HT11432
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Longmore
Lord Justice Lewison
and
Lord Justice Floyd
Case No: A1/2013/0846
Mr Mark Wonnacott QC (instructed by Mishcon De Reya) for the Appellant
Mr Martin Hutchings QC (instructed by Forsters LLP) for the Respondent
Hearing date: 5th December 2013
At common law the measure of damages recoverable by a landlord at the end of the lease for breaches by the tenant of his repairing obligations is the cost of the repairs that the tenant should have carried out, plus loss of rent during the period needed to carry out those works. However, the common law measure of damages is capped by section 18 of the Landlord and Tenant Act 1927 which limits damages to the diminution in value of the landlord's reversion caused by the breaches. The conventional way of calculating that diminution is by valuing the reversion in the state in which it actually was at the end of the lease and comparing that value with the value of the reversion in the state in which it should have been at the end of the lease. The difference between the two values is the diminution in value of the reversion.
In our case the tenant (Tiger) left the premises, which were offices in Soho Square, in very poor condition, despite having had a lease containing comprehensive repairing obligations. After the tenant had vacated the property in November 2008 the landlord (Sunlife) carried out extensive work in order to relet it; and then sued the tenant to recover the cost of those works.
Edwards-Stuart J, in a meticulous judgment, assessed the common law measure of damages at £1,353,254. There is no appeal against that finding, which therefore represents the starting point. He also found that the value of the reversion in its actual condition at the end of the lease was £4,462,000. There is no appeal against that either. The third component was the value of the reversion in the condition in which it ought to have been. The judge assessed that at £5,870,000. The outcome of these figures was that the diminution in value exceeded the cost of the necessary works, with the result that the statutory cap did not apply. Accordingly, the judge awarded the landlord the cost of the necessary works, plus various incidental items. It is the judge's assessment of the value of the reversion in the condition in which it ought to have been against which the tenant appeals. The judge's judgment is at [2103] EWHC 463 (TCC), [2013] 2 P & CR 55. Mr Mark Wonnacott QC presented the tenant's appeal, and Mr Martin Hutchings QC presented the landlord's response. For the reasons that follow I would dismiss the appeal.
The details of the landlord's claim and the tenant's responses to them were set out in a Scott Schedule. The judge described at [89] how the Scott Schedule was compiled. The important point to note at this stage is that it began by setting out the work that the landlord had actually carried out after the end of the lease, and which it alleged the tenant should have carried out in order to comply with its covenants. Some items were in dispute as to the extent of the work or the amount of the item. Some were in dispute as to liability.
The fact that there is no challenge to the judge's assessment of the measure of damages at common law is critical to an understanding of the issues. As Mr Wonnacott rightly said the common law measure of damages was established by the decision of this court in Joyner v Weeks [1891] 2 QB 31. Lord Esher MR formulated it thus:
"That rule is that, when there is a lease with a covenant to leave the premises in repair at the end of the term, and such covenant is broken, the lessee must pay what the lessor proves to be a reasonable and proper amount for putting the premises into the state of repair in which they ought to have been left."
Fry LJ agreed, approving the earlier judgment of Denman J in Morgan v Hardy (1886) 17 QBD 770, who in turn approved the statement in Mayne on Damages:
"Where the action is brought upon the covenant to repair at the end of the term, the damages are such a sum as will put the premises into the state of repair in which the tenant was bound to leave them."
Thus, in assessing the common law measure of damages the judge was required to find the sum that would have put the premises into the condition in which the tenant ought to have left them. The judge fully appreciated the nature of this task. At [38] he identified the three key issues, which were:
"First, what was the scope of Tiger's obligations under the covenants in the two leases? Second, what is the reasonable cost of putting the building back into the condition in which it should have been if there had been sufficient performance by Tiger of those obligations? Third, Tiger having failed to make sufficient performance of its obligations under the leases, what is the difference between the value of the building in its actual condition at the expiry of the leases and the condition that it should have been in if there had been sufficient performance by Tiger of its obligations? For the purpose of these last two questions, the tenant's obligation is to put and keep the premises in such repair as, having regard to the age, character, and locality of the building, would make it reasonably fit for the occupation of a tenant of the class who would be likely to take it: see Proudfoot v Hart (1890) 25 QBD 42. For shorthand, in the rest of this judgment I shall refer to this hypothetical tenant as the "appropriate type of tenant"."
I did not understand Mr Wonnacott to challenge the accuracy of that self-direction. The judge repeated, in several places, the nature of the task that he had to perform in order to answer the second question. Thus at [41] he said that:
"…the court must consider what work would have been required at the expiry of the lease in order to put the premises (if properly maintained and put in good condition by the tenant) into a condition that would enable it to be let to the appropriate type of tenant at a fair market rent. This may have two consequences. First, the landlord cannot recover the cost of that additional work from the tenant. Second, the additional work may make worthless some of the work that would have been necessary to put the building into repair with the result that, if such work has not been done, the landlord has suffered no loss and accordingly cannot recover any damages in respect of that breach. This is known as "supersession"."
At [43] he said that:
"It follows, therefore, that if the cost actually incurred by the landlord in seeking to put the building back into the condition in which it should have been left by the tenant is greater than the cost of other work which would be sufficient to put the building into that condition, then the landlord is limited to recovering the costs of the latter."
At [45] he said:
"… the appropriate test is not whether the landlord has acted reasonably in carrying out remedial works, but rather whether what the landlord has done by way of repair goes no further than was necessary to make good the tenant's breaches of covenant."
In all these statements the judge was firmly focussing on what works were necessary to put the building into the condition in which the tenant ought to have left it.
The judge carried out the task identified by the second of the two issues with conspicuous care. A few examples will suffice. One of the items in dispute was a lead mansard roof which the landlord had replaced. The tenant's expert accepted that if the roof had crazed to the point of cracking, it would have had to be replaced. The judge found that it had "cracked in places to an extent that justifies total replacement": [100]. Thus replacement of the lead was something that the tenant was required to have done. Another disputed item was the cost of replacing boilers. The tenant's case was that they could have been repaired or reconditioned. The judge concluded at [139]:
"Taking the evidence as a whole I am satisfied that the boilers were not in the condition required by the leases when Tiger moved out. On balance, I conclude that given the uncertainty about the condition of the boilers the appropriate course was to replace them. I consider that Tiger's standards of maintenance were so poor that it could not be safely assumed in their favour that the boilers were in good working order."
On the other hand, when considering the basement toilets the judge concluded that the landlord had carried out works that went beyond that which the tenant could have been obliged to do. He therefore assessed the damages for that item at 50 per cent of what the landlord had actually spent: [121]. A further disputed item was the façade. The judge found that even if the tenant had left it in good repair, the landlord would have re-rendered the façade to make the building more attractive. He therefore disallowed the bulk of the landlord's claim for this item: [104].
He found that with some exceptions the work that the landlord had actually carried out was either work that the tenant ought to have carried out in order to comply with its covenants; or was cheaper work that the landlord had carried out by way of mitigation of its loss. There is no challenge to any of the judge's findings in that respect. The end result of the judge's careful examination of all the items in the Scott Schedule was that he came to the sum of £1,353,254. This represented what the judge considered was the cost of putting the building back...
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