A landlord’s plans for a building at the end of a lease often sit uncomfortably with its dilapidations claim. If the landlord was always going to strip out and upgrade, what has the tenant’s failure to repair actually cost it? The Technology and Construction Court gave a clear answer in Craigard (Dartford) Ltd v Westbury Homes (Holdings) Ltd [2026]. B P Collins’ property disputes team looks in more detail at three linked questions relating to the case: 1) when a landlord can claim the cost of replacement rather than repair; 2) whether its intention to upgrade reduces its claim; and 3) how that intention affects the statutory cap on damages.
The landlord claimed just over £1.6 million. It recovered £648,141.47.
The background
The premises were a two-storey office building at Crossways Business Park, Dartford, built in about 1998. The tenant held a 20-year lease, which expired in July 2023. It did not occupy the building itself, but sub-let the offices. The lease contained a full repairing covenant, which expressly extended to the heating, cooling and air conditioning plant, and a covenant to maintain service contracts for it.
The landlord bought the freehold in March 2021. The heating, ventilation and air conditioning (HVAC) system was old, and its chillers ran on a refrigerant that could no longer be added to existing systems. From the outset, the landlord planned to replace the whole system as part of a refurbishment, to market the building as high-quality, energy-efficient offices. It carried out those works after the lease ended, and claimed most of their cost from the tenant.
The judge, HHJ Keyser KC, found that the tenant had not properly maintained the HVAC system, that this was “a calculated failure”, and that the system was out of repair when the lease ended. The tenant’s liability was not in doubt. The question was how much it should pay.
Repair or replacement?
The landlord’s case was that the system was beyond repair and had to be replaced. The tenant’s case was that replacing the chiller and repairing the rest would have been enough.
The judge accepted that it was reasonable for the landlord, from its own perspective, to invest in a new system. But that was not the test. A tenant is entitled to perform its repairing covenant in the way least onerous to it. It is not required to hand back new equipment if a reasonable specialist could have recommended either repair or replacement. Damages are then assessed based on repairs.
The burden was on the landlord to prove that replacement was necessary, and it failed to do so. It had decided to replace the system from the start and had never seriously considered repair. The judge noted that it had not wanted the tenant to do anything that might put the system back into repair. It produced no evidence of what repair would cost, so the court used the figures given by the tenant’s expert.
Does the landlord’s intention to upgrade reduce the claim?
The tenant argued that, because the landlord would have stripped out and replaced the HVAC system anyway, any repairs the tenant carried out would have been wasted. The judge agreed that, on the balance of probabilities, that is what would have happened. However, he still rejected the argument.
The normal measure of damages for breach of a repairing covenant at the end of a lease is the cost of the repairs. Under common law, the landlord’s intentions do not reduce that figure. The only protection for the tenant is section 18(1) of the Landlord and Tenant Act 1927. This caps damages at the amount by which the value of the landlord’s interest is reduced by the disrepair. It also removes the claim altogether where the building is to be demolished or structurally altered shortly after the lease ends, so that the repairs would be worthless. The parties agreed that the second part did not apply here.
The position was different for the landlord’s loss of rent. The landlord claimed rent lost while the works were carried out, and a contribution it had paid towards a sub-tenant’s alternative accommodation. The judge assessed the relevant loss at just over £44,000, but awarded nothing. The landlord would have lost that income anyway, because it was always going to carry out its improvement works. The loss had not been caused by the tenant’s breach.
The landlord did recover its surveyor’s and other professional fees, under a costs clause in the lease.
The statutory cap
The cap turns on the reduction in the value of the landlord’s interest, judged by what a hypothetical purchaser of the building would have paid in each condition. Both valuers were leading experts, but they disagreed about that purchaser’s likely plans. The tenant’s valuer said a purchaser would have carried out the same comprehensive refurbishment as the landlord, including a new HVAC system, so most of the repairs would have been superseded. The landlord’s valuer said a purchaser would have been content with a working system in proper repair.
The judge preferred the landlord’s valuer on that point. His view was supported by comparable lettings, while the opposing view rested largely on assertion. The landlord’s own plans were therefore not attributed to the hypothetical purchaser. The cap was assessed on the basis that a purchaser would have repaired the HVAC system, not replaced it.
There was, however, a gap in the landlord’s evidence. Its valuer had valued only on the basis of the landlord’s own case on the remedial works, so he gave no figure for the scenario the judge found. The final figures had to be worked out by the parties after the judgment.
What this means in practice
For landlords:
- Prove that replacement is needed – If repair is a reasonable option, damages will be assessed on that basis. Obtain evidence on whether repair is viable, and what it would cost, even if you intend to replace.
- Your plans will not wipe out your claim -An intention to upgrade does not reduce the cost-of-repairs measure at common law. It may, however, defeat a claim for lost rent or other losses during works you would have carried out anyway.
- Take care with your documents – Investor reports, marketing material and survey instructions will be disclosed. Here, they showed a settled plan to replace the system. The court also noted that the wording of a consultant’s report had been changed at the landlord’s surveyor’s request, and that the report had been obtained to support the claim rather than to inform the landlord’s decisions.
- Ask your valuer to cover the alternatives – A valuation that assumes the court will accept your case in full may leave the court without a figure.
For tenants:
- Minimal maintenance is a false economy – Keeping plant on a “minimal tickover” to the end of the lease will not avoid liability. The tenant here was ordered to pay over £600,000, with interest and costs still to be decided.
- Supersession arguments have limits – The landlord’s plans to upgrade will not reduce the cost of repairs at common law. The argument belongs within the statutory cap and must be supported by evidence of what a purchaser in the market would do.
- Argue for the least onerous remedy – The tenant is entitled to comply in the cheapest reasonable way. Make sure your experts set out a viable repair option, and what it would cost.
Get in touch
B P Collins’ property disputes team acts for landlords and tenants on all aspects of dilapidations claims, from supporting with the preparation of, and responding to, schedules, to negotiating settlements and trial, including on expert evidence and the application of the section 18 cap. Contact Elliott Brookes or a member of the property disputes team on 01753 889995 or email enquiries@bpcollins.co.uk.
The team’s ethos is simple: solve the problem.
