When a tenant leaves a rented property in disrepair, the landlord may claim costs to fix the issues. Section 18 valuations help ensure these claims are fair and offer a framework to cap the amount the landlord can recover under the Landlord and Tenant Act 1927. These valuations balance the tenant’s repairing obligations with the overarching principle of compensation, ensuring the claims do not exceed the landlord’s actual loss.
What Is a Section 18 Valuation?
A Section 18 valuation focuses on two key points.
- Has the disrepair reduced the property’s value?
This is called the “diminution in value.” The landlord can only claim the cost of repairs up to the extent that the disrepair decreases the property’s Market Value. This ensures landlords can’t demand more than the actual loss in value. - Are there bigger plans for the property?
Sometimes, landlords plan to redevelop, demolish, or significantly change a property after the lease ends. If that’s the case, repairing the property might not matter. This can reduce or even completely eliminate the tenant’s liability.
Why does it matter?
Section 18 valuations protect tenants from excessive claims while making sure landlords are fairly compensated for genuine losses. It’s a balanced approach that focuses on the real impact of the disrepair.
How Does It Work in Practice?
Valuers play a key role in this process. They assess the property’s market value both before and after repairs, consider the local property market, and have regard to the landlord’s future plans for the site. This requires a clear understanding of both property values and the law.
In short, Section 18 valuations ensure fairness in dilapidations disputes, making them an important tool for landlords and tenants alike. If you’re involved in a case like this, getting advice from an experienced valuer and building surveyor is essential.
A recent case is Peachside Limited v Lee & Keung [2024] EWHC 921 (TCC) where section 18 came under judicial examination, the key question whether the redevelopment of the property was inevitable.
The property was a former restaurant with the lower floors occupied by a bookmaker. The lease had fairly standard repairing obligations. The evidence for the landlord described the property as a ‘warzone with grease’.
Landlord’s Approach
The landlord planned a two-phase approach to address the disrepair:
Phase One: Conduct essential repairs to restore the property for potential re-letting as a restaurant.
Phase Two: If re-letting as a restaurant proved unfeasible due to low demand, proceed with redevelopment to convert the premises into commercial office space, including significant alterations like installing a new passenger lift.
Tenant’s Defence
The tenants contested the claim on several grounds:
Betterment: Argued that some repair works constituted improvements beyond the original condition, which they shouldn’t be liable for.
Diminution in Value: Asserted that the cost of repairs exceeded the actual reduction in the property’s value caused by the disrepair, invoking the first limb of Section 18(1) of the Landlord and Tenant Act 1927.
Supersession: Claimed that the landlord’s intended redevelopment (Phase Two) would render the initial repairs unnecessary, referencing the second limb of Section 18(1).
Court’s Findings
The court evaluated the landlord’s intentions and the necessity of the proposed works. It concluded that the landlord’s phased approach was reasonable, aiming first to repair and re-let the property in its original use before considering redevelopment. The total damages awarded against the former tenants were over £500,000.
Implications
This case shows the importance of clear evidence regarding a landlord’s intentions post-lease and highlights how Section 18 valuations cap dilapidations claims to the actual loss in property value.
