If the cap fits…

A landlord should always be aware that the disrepair element of any dilapidations claim brought against its tenant is subject to, and limited by, s18(1) of the Landlord and Tenant Act 1927, otherwise known as ‘the statutory cap’.

In simple terms, the cap operates to restrict the landlord’s disrepair claim to ‘the diminution in value’ of the property at the lease termination date, whatever the cost of the necessary repairs might be. The original legislative intention of the cap was to deprive landlords of a windfall in circumstances where they did not intend to carry out repair works at lease termination.

The diminution in value is likely to be represented by the cost of repairs if the landlord has actually carried them out (but this proposition can be challenged depending on the circumstances).

The position becomes more difficult however if the landlord has not carried out the repairs and has no intention of carrying them out in the future. In these circumstances, the cost of repairs might be no guide at all to the diminution in value. Instead, a detailed valuation exercise must be carried out by reference to the actual intention of the landlord at the lease termination date and what objectively different categories of hypothetical purchaser would have done on that date by reference to the state of the market.

The exercise of valuing the diminution in value, and the case law which surrounds it, can be very complex. To avoid the potential of a time consuming and costly dispute, a landlord should always follow the guidance set out in the Court endorsed Dilapidations Protocol which sets out the necessary steps to be taken by both the landlord and the tenant in order to facilitate the possible early settlement of the dilapidations claim.