Section 18: the cap that turns a schedule total into a real number

What the section says

Section 18(1) of the Landlord and Tenant Act 1927 provides that damages for breach of a covenant to keep or put premises in repair during the currency of a lease, or to leave or put premises in repair at the termination of a lease, shall in no case exceed the amount (if any) by which the value of the reversion in the premises is diminished owing to the breach. It goes on to provide that no damage shall be recovered for breach of a covenant to leave or put premises in repair at the termination of a lease if it is shown that the premises, in whatever state of repair they might be, would at or shortly after the termination of the tenancy have been pulled down, or such structural alterations made as would render the repairs valueless (legislation.gov.uk).

The two limbs, in practice

First limb: the cap

Damages cannot exceed the fall in the value of the landlord's reversion caused by the breaches. Where the works would cost more than they add back to value, the value figure governs.

Second limb: the bar

Where it is shown the premises would be demolished or structurally altered such that the repairs would be valueless, damages for the terminal repairing breach are not recoverable at all. Landlord intentions at and shortly after termination therefore matter enormously.

How the cap is evidenced

The cap is a valuation question, not a building question. It is usually evidenced by a diminution valuation: a valuation of the reversion in the actual condition of the premises against its value in the condition the covenants required. That is a separate instruction from preparing or responding to a schedule, and it is often given by a valuer rather than the building surveyor who wrote the schedule. The dilapidations protocol expects the landlord to quantify its loss by a formal diminution valuation, an account of actual expenditure, or a combination, and states that a formal diminution valuation is required unless in all the circumstances it would be reasonable not to provide one.

Things that commonly reduce a claim

• The landlord's own works. If a refurbishment or reconfiguration would have removed the item anyway, its cost may be superseded.
• Redevelopment. Where demolition or structural alteration is shown, the second limb of section 18(1) can extinguish the terminal repairing claim.
• A schedule of condition annexed to the lease, limiting the standard the tenant ever had to reach.
• Betterment, where the schedule specifies replacement or upgrade beyond what the covenant requires.
• Market evidence. Where premises of this type let readily in the condition they are in, the diminution may be small even if the schedule is long.

None of this is legal advice, and section 18(1) has been the subject of a great deal of case law that a summary cannot capture. It is, however, the reason a schedule total should never be treated as a liability figure by either side.