In this difficult market many landlords who recover possession of a property with substantial dilapidations have to think carefully before simply carrying out extensive repair works. Particularly where funds are limited. Indeed it is more common for landlords not to carry out the repair works unless a new tenant has been found to occupy the property.
Landlords can take some consolation from the recent decision in the case of Hammersmatch Properties (Welwyn) Ltd v Saint-Gobain Ceramics and Plastics Ltd (2013).
In that case the estimated cost of works were claimed to be £6.8 million. The tenant argued that the property could not be let even in repair, and so that no reasonable landlord would spend this considerable sum of money putting the property into repair. The tenant further argued that the landlord’s damages should be limited to the amount that a developer would pay for the site, estimated to be £100,000.
The Court assessed the cost of the repairs to be £2.4 million and agreed that the landlord did not intend to carry out the works. However the Court did not limit the value of the property and instead valued the property in repair at just over £3 million. The Court was willing to look at the rents at the landlord may have obtained by subdividing the property into let-able units and applied a yield of 10%. After deducting the cost of the works to create let-able units and other expenses until the property was fully let the judge assessed the diminution in value at £900,000.
This does not simplify the increasingly complex area of Section 18 valuations, but should identify a pressing need for landlords to seek advice on dilapidations, including valuation evidence.
By Partner, Louise Hebborn
Stephensons’ property litigation team provide a cost effective and commercial approach to dilapidations. Contact us for assistance - 0333 344 4772.