PGF II SA & PGF II (Lime) SA v Royal & Sun Alliance Insurance Plc (2010)
A landlord was entitled to damages for breach of repairing and reinstatement covenants from the head lessee and from the under lessee. The head lessee was entitled to damages for disrepair and failure to reinstate against the under lessee.
The claimant landlord (P) claimed damages for breach of repairing, decoration and reinstatement covenants from the first defendant (R) and claimed against the second defendant (L) for reinstatement. R claimed damages for disrepair and failure to reinstate the premises in breach of covenant against L. In 1997 R became a tenant of the property and with the consent of the then landlord sublet the majority of the building to L. The sublease expired four days before the expiry of the head lease. At the same time the sublease was granted a licence to alter the premises was also granted. The licence included a direct covenant by L with P's predecessor to reinstate the underlet premises in accordance with the terms of the lease. P acquired the freehold of the property in 2007. The leases expired through effluxion of time and P gained vacant possession. A decision was made that the cladding in the building needed replacing. A revised schedule of dilapidations and reinstatement was served and proceedings issued.
(1) Under the Landlord and Tenant Act 1927 s.18(1) it was first necessary to value the common law damages of putting the premises in repair. Secondly, a cap was to be applied limiting the damages to the diminution in the value of the reversion, Joyner v Weeks (1891) 2 QB 31 CA and Ruxley Electronics & Construction Ltd v Forsyth (1996) AC 344 HL considered. There was no dispute that P had carried out a scheme of refurbishment that went considerably beyond what R and L could have been expected to pay to put the premises in repair. At common law P was entitled to recover, subject to the cap, reasonable damages that related to the actual loss that had been suffered assessed at the date of the termination of the lease. That was achieved by assessing the cost of the works which should have been carried out by R and L and by deducting the cost of any works which would have been rendered valueless by other works which would have been carried out by P if the property had been put into repair by R and L. (2) On the evidence, at the date of the termination of the lease P had not reached a firm decision to replace the cladding as it had reasonable alternative options. The decision as to how to proceed depended crucially on what sum P would recover from the dilapidations and on the uncertain economic circumstances at the time of the termination of the lease. Applying the principles under the Act, at the date of termination of the lease P had reasonably come to no clear decision as to whether or not to replace the cladding. (3) In respect of R's claim against L, on the evidence, under the lease an obligation had been imposed on L in relation to maintenance of the exterior of the building and, in particular, to the cladding. (4) The reasonable cost of preparing a schedule of dilapidations was the direct consequence of the tenant's breach and was recoverable. The cost of preparing the schedule should not exceed £6,000. (4) P was entitled to interest at three per cent above the London Inter-Bank Offered Rate.