419-1587-Clerksroom-RRD-Stephen-Pritchett

Reinstatement, Repairs and Damages 

Issues arising in the commercial landlord and tenant context 

by Stephen J Pritchett, Barrister at Clerksroom 

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REINSTATEMENT – WHEN DOES 

THE LIABILITY ARISE ? 

Stephen Pritchett, Barrister at clerksroom examines the recent decision in 

In re Teathers [2012] EWHC 2886 Ch (22 October 2012) 

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The decision of Sir Andrew Morritt, the Chancellor in In re Teathers emphasises the need for caution 

in drafting surrenders where there are potential claims for damages for reinstatement. 

THE FACTS 

Briefly the facts were: 

LL granted to T (Teathers) various leases each for a term expiring on 30 March 2014. Each lease 

contained a tenant covenant: 

“to keep the demised premises…in good and substantial repair and condition…and in such repair 

and condition…to yield up the same at the expiration or sooner determination of the term”. 

On 14 December 2005 licences to alter were granted in favour of the T which contained provisions: 

“Before the end of the Lease the Tenant is to dismantle and remove the Works and reinstate the 

Premises to the same plan and design as before the carrying out of the Works and as if the Works had 

not been carried out (unless and to the extent that the Landlord requests that it does not do so).” 

On 13 November 2009 following the appointment of administrators of T, surrenders were entered 

into in respect of the leases which provided: 

“[LL] and [T] respectively release each other from the rights and obligations contained in the Lease 

and from all liability in respect of any breach of those rights and obligations whether arising on or 

after, but not before, the date of this Surrender.” 

LL sought to prove in the insolvency of T for the cost of reinstatement under the terms of the Licences 

to Alter. The liquidator disputed the proofs of debt and the Court was invited to determine preliminary 

issues which involved a determination as to whether the LL had a valid claim for reinstatement costs/ 

damages against T.

ANALYSIS 

The Chancellor accepted that the Licence gave to the T the full extent of the Term granted by the 

lease in order to carry out the reinstatement works. He therefore held that because the obligation 

was one which lasted throughout the term and therefore beyond the date of the Surrender, the 

obligation had been released by the Surrender. The Court specifically held that the T had until 13 

November 2009 to fulfil the obligations and that accordingly the liability was one which arose “after, 

but not before, the date of this Surrender”. Accordingly the Court appears to have treated the liability 

as a future liability which was accordingly released. 

There is an alternative argument which does not appear from the Approved Judgment to have 

been run. Importantly, the Licence stated that the obligation to reinstate in accordance with the 

requirements of the Licences to Alter arose “at the end of the Lease”. Although that was treated as 

coextensive with the “end of the term” it is capable of bearing an alternative meaning. The end of the 

Lease could be construed as “the end of the Lease howsoever arising” with the result that it would 

create an obligation whether the Lease expired by effluxion of time, by surrender or by forfeiture. 

That would create an obligation to reinstate at the same moment as the surrender of the Lease and 

would be caught by the provisions of the Surrender as an obligation “arising on or after….the date 

of this Surrender”; the liability would arise and at the self same time be released. 

The importance here for practitioners is to ensure that any Deed of Surrender properly takes account 

of present, future and contingent liabilities on the part of the T and properly distinguishes between 

those which are to be released and those which are not. It is important to factor in that a reinstatement 

obligation may be treated as a future obligation capable of being performed at any time up to the 

end of the Lease as opposed to the end of the Term. 

There is a second aspect to this case which deals with the calculation of damages under section 18. 

The landlord re-let the premises at a reduced rental and giving a substantial rent free period. It then 

sought to recover a large proportion of the rent attributable to the rent free period and the rent 

differential as damages. The Court emphasised that the assessment under section 18 is essentially 

a comparative one - between the value of the reversion in the repaired and unrepaired conditions. 

That has to be taken as a snapshot at the date of termination. At that date no-one knows what if 

any rental concessions will need to be given nor what future rental will be agreed with an incoming 

tenant. Those claims are not claims arrived at or calculated in accordance with section 18. They may 

be evidence of a diminution in value; they may be of use in assessing the diminution in value, but the 

assessment of damages is not as simple or straightforward as saying that because of the breaches 

the rent was reduced so as to claim as damages the rent differential. The effect upon the saleability 

or marketability of the premises inn disrepair must be transposed into a diminution in value figure. 

Reduced rent and rental concessions MAY but will not always extrapolate into a diminution in value 

“attributable to the breaches” as there may be many reasons why concessions are given. 

STEPHEN J PRITCHETT 

Monday, 7 January 2013 www.chancerycounsel.co.uk 


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FiXTurES, FiTTingS, AlTErATionS 

AnD SuccESSivE lEASES 

The second in a trilogy of commentaries by Stephen J Pritchett, Barrister at 

clerksroom on issues of interest in particular to retail tenants. (7 January 2013) 



T: 0845 083 3000 

F: 0845 083 3001 



Long-standing retail occupants are, for diverse reasons, abandoning the high street. The decisionmaking 

process which takes place beforehand should involve a careful analysis of the benefits of 

staying compared to the benefits of relocating or closing down the store altogether – the “shall I stay 

or shall I go” decision assisted by lawyer and surveyor. 

EXEcuTivE SummAry 

> Tenants have a right to remove tenant’s fixtures which have been added to demised premises 

during an old lease and also during any statutory continuance of that lease up to the date 

upon which a second lease is granted 

> If the tenant surrenders the first lease and vacates the premises without removing the tenant’s 

fixtures, then he is held to have abandoned them. 

> If the tenant surrenders his lease and remains in possession under a new lease, absent express 

words, the common law rule applies and he retains his right to remove the fixtures so long as 

he is in possession as a tenant 

> The lease may state what is to happen to tenant’s fixtures and fittings and may create an 

obligation to remove them breach of which may sound in damages represented by the cost 

of removal; such an obligation would prima facie apply to fixtures and fittings installed by the 

same tenant of the same premises under a previous lease 

> Tenant’s fixtures and fittings left in the premises will accrue to the landlord and may become 

subject to the general repairing obligations 

> A reinstatement obligation may be limited to alterations carried out “during the term” or it may 

incorporate an extended obligation to reinstate alterations made during any prior term or 

period of the tenant’s occupation. If the obligation is extended in this way then the schedule of 

dilapidations following expiry of a second or third lease will properly specify alterations made 

under a prior lease.

In more usual circumstances where the reinstatement obligation is limited to alterations 

carried out “during the term”, the landlord will, at the end of the second or third lease not be 

able to enforce the reinstatement obligation under that lease in respect of historic alterations 

but will potentially have a cause of action under the old lease [subject to issues of limitations] 

for damages for breach. 

> Although section 18 does not apply to covenants for reinstatement, a similar end result can 

be achieved by the tenant arguing that at the date of the historic breach there was no loss 

because the landlord did not actually reinstate and the landlord retained a tenant paying the 

same rent under the successor lease. 

AnAlySiS 

One of the, often underestimated and therefore under analysed, issues within this process is the 

potential liability which the tenant may have to the landlord under its lease covenants relating to 

repair, reinstatement, alterations and fixtures and fittings. 

In this paper I would like to concentrate on the aspect of this analysis which is, in my experience, 

frequently arising in circumstances where tenants have held a particular unit for a substantial number 

of years under a succession of leases and have, during the earlier leases installed often substantial 

and expensive to remove fixtures and fittings or carried out a substantial alterations. The particular 

lease has come to an end and following negotiations between the parties or proceedings under 

the 1954 Act, a new lease has been entered into for a further term. At the time of the grant of the 

new lease no thought was given to the question of tenant’s fixtures and fittings installed during the 

first lease or to the question alterations made by the tenant during the period of the first lease. The 

second or third successive lease then comes to an end and the tenant elects to vacate. 

What is the position then with regard to the tenant’s fixtures and fittings? What is the responsibility 

of the tenant in relation to alterations made during one of the earlier leases? 

FiXTurES AnD FiTTingS 

In terms of fixtures and fittings installed by a tenant for the purposes of its business the position is 

now relatively settled at least to the level of the Court of Appeal. 

Prior to 1981 the position appeared to be substantially confused and there was a substantial body 

of judicial comment to the effect that a tenant lost his right to remove his fixtures at the end of the 

original lease unless the right was expressly reserved in the new lease. 

In Leschallas v Woolf [1908] 1 Ch 641 @ 652 Mr Justice Parker commented that; 

“If the tenant upon the surrender of his lease in order that a new lease may be granted makes no 

stipulation to the contrary, he does lose his right to remove tenant’s fixtures”. 

Mr Justice Scrutton held likewise in the context of surrender by operation of law. See Slough Picture 

Hall Co Limited v Wade (1916) 32 T.L.R. 542 



In 1920 Lord Justice Warrington in Pole-Carew v. Western Counties and General Manure Company 

Ltd [1920] 2 Ch 97 @ 122 said; 

“I think it is clear that after a surrender of the term in the land to which tenant’s fixtures are attached 

and the subsequent lease to the same tenant the latter can no longer remove the tenant’s fixtures 

unless his existing right to remove them is reserved expressly or by necessary implication” 

In late 1981, however, the issue arose before the Court of Appeal chaired by Lord Denning Master of 

the Rolls sitting with Lord Justices Dunn and Fox in the context of determining the open market rental 

value of demised premises and how far the tenant’s fixtures were to be included in that analysis. See 

New Zealand Government Property Corporation v HM & S Ltd [1982] 1 QB 1145. 

In that case based upon a large body of first instance dicta it was submitted by the landlords that a 

tenant who wished to retain the right to remove tenant’s fixtures during a new term should expressly 

reserve that right in the new lease and if he did not do so then, as a matter of law, at the end of the 

original lease all of the tenant’s fixtures accrued to the landlord and attached to the freehold. 

For the tenants it was submitted that there was no case which held that when a tenant continued 

in occupation after the end of an original lease he lost his right to remove his fixtures. If there was 

any distinction drawn on the authorities it was between a tenant who was leaving the demised 

premises altogether and the tenant who was staying in the premises under the auspices of a new 

arrangement with the landlord. 

The Court of Appeal was clearly not attracted by an argument which gave rise to fine distinctions 

dependent upon the circumstances in which a particular lease came to an end or which could give 

rise to different answers dependent upon whether or not the original lease was determined by an 

express surrender or by an implied surrender and whether or not the tenant vacated or remained in 

possession under the terms of a new lease. 

Lord Denning, giving the leading judgement began his analysis by noting that; 

“It is clear law that a tenant has a right to remove “tenant’s fixtures” before the term comes to 

an end”. 

He stated that in those circumstances there was no doubt that the tenants had a right to remove 

tenant’s fixtures which had been added to the demised premises during the old lease and also 

during the statutory continuance of that lease up to the date upon which the second lease was 

granted and, as the court indicated, the first lease was effectively surrendered by operation of law. 

The question for the court was whether or not the right to remove the tenant’s fixtures continued 

after that surrender by operation of law and throughout the duration of the second lease. 

Despite the weight of first instance authority the Court of Appeal held that those previous opinions 

were wrong. Lord Denning said the tenant remains entitled to remove the “tenant’s fixtures” so long 

as he remains in possession. 



He said that this had been the law and decided since 1801 in a case called Penton v Robart (1801) 

East 88 where the Lord Chief Justice had said at page 90 

“Here the defendant did no more than he had a right to do; he was in fact still in possession of the 

premises at the time the things were taken away, and therefore there is no pretence to say that he 

had abandoned his right to them”. 

Lord Denning also referred to a later decision, Weeton v Woodcock (1840) 7 M 7 W 14, in which Baron 

Alderson said at page 19; 

“The rule to be collected from the several cases decided on this subject seems to be this, that the 

tenant’s right to remove the fixtures continues during his original term, and during such further period 

of possession by him as he holds the premises under a right still to consider himself as tenant”. 

The absence of clear authority at Court of Appeal level meant that the Court could consider the 

point afresh and that in all circumstances, where an existing lease expires or is surrendered and is 

immediately followed by another lease to the same tenant remaining in possession, the tenant does 

not lose his right to remove the tenants fixtures and he is entitled to remove them at the end of his 

new tenancy. 

Lord Justice Dunn said; 

“I believe the true rule of common law to be that a tenant has the right to remove tenant’s fixtures 

so long as he is in possession as a tenant whether by holding over, or as a statutory tenant...... on an 

extension of a lease of business premises....” 

He went on to comment 

“If the tenant surrenders his lease and vacates the premises without removing the tenant’s fixtures, 

then he is held to have abandoned them. But if he surrenders his lease, either expressly or by 

operation of law, and remains in possession under a new lease, it is a question of construction of 

the instrument of surrender whether or not he has also given up his right to remove his fixtures. If 

nothing is said, than the common law rule applies and he retains his right to remove the fixtures so 

long as he is in possession as a tenant”. 

Lord Justice Fox gave a judgement to similar effect and said this 

“First, I can see that, if a tenant upon the determination of his lease quits the holding without 

removing his fixtures, he may have to be taken to have abandoned them. Secondly, if the tenant 

executes an express surrender of his lease or enters into an express agreement to surrender his 

lease, the surrender or agreement must be construed according to its terms. It may be that the 

document can only be construed as a disposition of the entirety of the tenant’s rights in respect of 

the land and will, therefore, extinguishes rights thereafter to remove tenant’s fixtures....... but when 

one comes to cases where the tenant, after the determination of his lease, remains in possession 

of the property under a new lease and the determination of the old lease was either by effluxion 

of time or surrender by operation of law, it seems to me that quite different considerations apply. 

I can see no sensible reason why, in the circumstances, the tenant should lose his right to remove 

his fixtures. The fixtures were brought in by him for the purposes of his occupation as tenant and 



one would suppose that (subject to any express disposition by him) his rights in respect of them 

would not alter so long as he continued to occupy as tenant whether under his original lease or a 

new lease taking effect upon the determination of the original lease. I do not believe that a person 

holding over as a tenant from year to year taking a renewal of his lease under a provision in the 

original agreement would imagine that any rights that he had to remove fixtures would be affected 

by the determination of the original lease. The Landlord and Tenant Act 1954 is designed to ensure 

security of tenure for business tenants. The Act in effect enables such tenants to obtain extensions 

of their leases from time to time to enable them to carry on their businesses. One would be reluctant 

to reach the conclusion that while tenants are secure in their tenancies they may lose their rights in 

respect of valuable business fixtures.” 

Accordingly the position appears to be that any tenant’s fixtures or fittings which are installed by 

the tenant under one of a succession of leases in favour of the same tenant will not lose their status 

notwithstanding the fact that each successive grant of a new lease takes effect as a surrender of the 

old lease. In the blink of an eye between the surrender of the old term and the grant of the new term, 

the fixtures and fittings do not lose their status and accrue to the landlord as part of the freehold 

reversion but remain items which the tenant is entitled [possibly obliged] to remove subject to 

express provision to the contrary. 

This means, therefore, that when one is considering the position of tenants’ fixtures and fittings at 

the end of a second or third successive lease one must do so bearing in mind the fact that the tenants 

fixtures and fittings installed under an earlier lease are not only capable of being removed by the 

tenant but, perhaps more importantly, may well be the subject matter of an express obligation in 

the lease to remove them. 

A relatively standard obligation on the part of a tenant to remove tenants fixtures and fittings from 

the demised premises at the end of the term will, therefore, ostensibly apply to fixtures and fittings 

applied to the premises both during the final lease but also such fixtures and fittings as retained that 

status having been placed upon the demised premises by the tenant under an earlier lease. 

Assuming the absence of a positive obligation to remove tenant’s fixtures, if the tenant elects not 

to remove them then there is a further possibility that the repairing obligations under the lease 

will apply to the fixtures which have thus become part of the freehold reversion. The non-removal 

means that the items accrue to the landlord and the landlord can therefore expect that they should 

be delivered up in repair. 

In Simmons v Dresden [2004] EWHC 933 HH Judge Seymour QC held that where a tenant had left 

partitions, fixtures and fittings in breach of an obligation to remove them, a landlord was limited to 

his remedy in damages for non-removal and could not [on the wording of the covenant in question] 

leave them in situ and argue for their repair costs. The covenant was unusually worded and care 

needs to be taken to look at the lease obligations as a whole with regard to yielding up and repair 

(as well as the extent of the demise and whether this is expressed to include or exclude tenant’s 

fixtures) in order to determine what the positive leasehold obligations are with regard to removal 

and [assuming there is no obligation to remove them] whether the outgoing tenant is better off in 

any event removing the fixtures or leaving them in situ and merely ensuring that they are delivered 

up in repair. 



It is suggested that in the usual case where there is no express obligation to remove the fixtures 

and the tenant does not do so, the fixtures will accrue to the landlord, there will be no breach of any 

obligation with regard to yielding up because there was no positive obligation to remove which has 

been breached, but that the fixtures, having become part of the reversionary corpus, will nevertheless 

be subject to the obligation to repair upon yielding up. 

Thus the tenant may well have to factor in to his calculations the costs of removing or possibly even 

repairing defunct machinery and equipment. At the end of the second or third successive lease the 

landlord would appear to have a strong case for charging to the tenant the costs of removal. 

The Code of Practice for Commercial Leases states that the landlord’s control over alterations 

should not be more restrictive than necessary to protect the value of the property and any 

neighbouring property of the landlord. At the end of the lease, tenants should not be required to 

reinstate unless reasonably required. The BPF and BCO model clauses incorporate an obligation in 

relation to reinstatement : 

“(save to the extent reasonably required in writing by the Landlord) remove and make good any 

alterations or additions made to the Premises during the Term, or any prior period of occupation 

by the Tenant or its predecessors, and reinstate the Premises in a good and workmanlike manner 

to the Landlord’s reasonable satisfaction” 

AlTErATionS 

So what is the position with regard to alterations? 

In this context the relevant distinction is probably between those alterations which are lawful and 

those which are unlawful. 

The landlord’s cause of action for breach of a covenant against alterations will be broken at the time 

the alterations are undertaken whereas the cause of action for a failure to reinstate [whether lawful 

or unlawful] alterations will accrue at the time of the failure to reinstate – which will almost always be 

the end of the term. In the context of alterations the lease covenants will be the most important factor 

to consider. Unlawful alterations may however be caught by two distinct covenants; the covenant 

against alterations per se and the covenant to reinstate. Thus the landlord may well find himself with 

2 separate causes of action, one of which accrues much later than the other. 

A reinstatement obligation maybe conditional upon the landlord requiring reinstatement or may 

be absolute. The obligation may be limited to alterations carried out during the term or it may 

incorporate an extended obligation to reinstate alterations made during any prior term or period of 

the tenant’s occupation. If the obligation is extended in this way then the schedule of dilapidations 

following expiry of a second or third lease will properly be able to specify reinstatement obligations 

notwithstanding that the alterations were made under a prior lease. But in more usual circumstances 

where the reinstatement obligation is limited to alterations carried out “during the term”, the landlord 

will, at the end of the second or third lease not be able to enforce the reinstatement obligation under 

that lease in respect of historic alterations. 



It is suggested that the following analysis will apply in this context. 

Firstly, the tenant will be in breach of his reinstatement obligations under the first lease at the latest 

by the date upon which the first lease is surrendered by operation of law in favour of the grant of the 

second lease. 

Second, the landlord’s cause of action will probably be a specialty and therefore last for 12 years from 

the date of the breach. 

Thirdly, assuming that the second lease merely refers to alterations made during “the Term”, this 

would not ordinarily extend to alterations made during a prior lease. 

Fourthly, therefore, by the time the second lease comes to an end [depending upon its length] there 

may be limitation issues with regard to enforcement of that cause of action. 

Fifthly, even if the historic breach of the reinstatement obligation under the first lease is not statute 

barred, the tenant will inevitably argue that it would be unreasonable to award damages for that 

historic breach because the landlord retained a tenant paying rent in the premises as altered without 

any reinstatement costs having been incurred by the landlord. Whether this argument is properly 

categorized as a prima facie measure of damages argument or a decision based upon Ruxley and 

the reasonableness of expenditure for nil return is debateable. 

It would be argued that the relevant cause of action for these purposes is the one under the first 

lease and that the landlord cannot elide the need for reinstatement under the second lease [but the 

absence of a power to require it] with the obligation and breach under the first lease and thus claim 

damages at the end of the second or third lease referable to the cost of reinstatement at that time. 

Section 18 will not apply in terms to a claim in reinstatement and accordingly the true measure of 

damages is the cost incurred by the landlord in remedying the breach. The damages which flow 

from a breach of a reinstatement obligation should be assessed at the date of the breach and here 

the relevant breach occurred many years ago and gave rise to no loss to the landlord. 

Thus, on behalf of a landlord, upon successive leases it is important to ensure that the reinstatement 

obligation covers alterations made during the term and any prior term or period of occupation by 

that particular tenant. 

On behalf of the tenant it will be important to seek to limit the reinstatement obligations to those 

carried out during the relevant term only and to exclude any wider reinstatement obligations in the 

successor lease. 

STEPHEn J PriTcHETT 

monday, 7 January 2013 www.chancerycounsel.co.uk 





Equity House 




TERMINAL DILAPIDATIONS – is the 

cost of repair invariably the measure 

of damages? 

The third in a trilogy of commentaries by Stephen J Pritchett, Barrister at 

Clerksroom on issues specifically affecting retail tenants. (7 January 2013) 



T: 0845 083 3000 

F: 0845 083 3001 



THE SCENARIO 

The end of the lease looms. The landlord serves a schedule of terminal dilapidations which hits 

the doormat with a large thud. Every conceivable item of work or repair has been itemized by an 

overzealous building surveyor upon instructions from the landlord. A settlement is achieved and 

money changes hands. Months later there is no sign of any substantial works having been carried 

out to the majority of the premises and they are being marketed at the old passing rent. 

> Tenants have a right to remove tenant’s fixtures which have been added to demised premises 

during an old lease and also during any statutory continuance of that lease up to the date 

upon which a second lease is granted 

SUMMARY OF APPLICABLE PRINCIPLES 

> The measure of damages for breach of covenant to repair is the cost of the works necessary to 

remedy the breach 

> The cost of works as a measure is however subject to the statutory cap upon damages under 

section 18 Landlord and Tenant Act 1927 which limits the damages to the diminution in value 

to the reversion caused by the dilapidations 

> The Court is not ordinarily concerned with what a claimant does with his damages; the claimant 

is perfectly entitled to claim the cost of repairs and then decide not to carry out the works and 

pocket the damages. 

> Where the landlord has not done the necessary works and has no intention of doing so, the 

costs of works will not be any realistic guide to the landlord’s loss and the landlord will need to 

prove an actual diminution in value.

Costs incurred are subject to issues of reasonableness in terms of assessing whether a landlord’s 

response is a reasonable and proportionate response to the breaches alleged in light of the 

impact upon rental value in the hands of the landlord 

ANALYSIS 

A landlord with a comprehensive series of tenant covenants will invariably consider that he is entitled 

to an indemnity in relation to works carried out at the demised premises. However, in a case where 

the landlord has undertaken the works of repair set out in the schedule of dilapidations, to what 

extent can the tenant challenge that cost? 

Section 18 operates as a cap upon the common law measure of damages; it is not a measure of 

damages in itself. Implicit in that concept is the principle that the cost of repairs incurred may 

exceed the amount of the diminution in value and that accordingly the landlord’s claim is limited to 

the latter. 

A costed schedule of dilapidations of £150,000 may well have at its core repair works of £50,000 

which it is both reasonable and fair to attribute to breaches by the tenant and which properly affect 

the landlord’s reversionary value. However, take the case of the wholly superfluous outbuilding in 

the grounds of the demised premises which serves no practical purpose for the tenant but which 

nevertheless forms part of the demise and for which the landlord claims the costs of re-roofing. Take 

the case of the high street retail unit with three unwanted floors above. They form part of the demise 

but due to access problems no retailer would ever make beneficial use of those floors. Despite this the 

landlord claims the costs he incurred in redecorating and re-carpeting those areas. The landlord has 

incurred the costs and thus his surveyors argue that the cost of repair is the measure of damages. 

There is in my opinion far too much reliance by some landlords and far too much willingness on the 

part of tenants and tenant’s surveyors to accept without question the principle that costs of repairs 

equals the measure of damages. 

There are 2 principles which, in my opinion, come into play when considering a landlord’s costed 

schedule of works actually undertaken; firstly whether the works were reasonable ones to have 

been carried out bearing in mind the financial benefits and costs and secondly, at what point in the 

works, as one surveyor put it to me recently, the law of diminishing returns applies so that further 

expenditure is not necessary in order to maintain the rental yield from the demised premises. 

Section 18 implicitly recognizes that the main objective of the landlord is to preserve the rental value 

and therefore the underlying investment value of the building in question. Any landlord believing 

that he has an open cheque book from an outgoing tenant will prefer to have every screw screwed 

and every nail nailed but the law recognizes that in seeking to maintain the balance between the 

landlord and tenant, the tenant should be chargeable with a maximum of the diminution in value. 



Thus as a matter of valuation it is perfectly legitimate to seek to demonstrate that despite the fact 

that the landlord has incurred £150,000 worth of costs in repairing and redecorating, only £50,000 

of those works actually had any effect upon value. The extra £100,000 was wasted in the sense that 

the landlord could have spent £50,000 only and still managed to get the self-same rental in the open 

market as he was able to achieve having spent an additional £100,000. 

Whether this is an application of the section 18 cap or is an aspect of the common law based upon 

the House of Lords decision in Ruxley is perhaps a somewhat unnecessary and arid debate. Either 

way, the law is recognising that for one reason or another it is an unreasonable response to the 

tenant’s technical breaches of covenant to seek to charge the tenant with works which were [on the 

Ruxley basis] unreasonably incurred or [on the section 18 basis] capped by the diminution in value. 

The important factor to note here, therefore, is that a landlord cannot expect to recover every penny 

of his costed schedule even where he has had the work out to tender and carried out. The schedule 

can still be subjected to detailed analysis by a valuer as to the point at which the costs incurred cease 

to have an effect upon reversionary value and become wholly superfluous. 

An express reinstatement obligation is not subject to the section 18 cap due to the wording of the 

section itself but it seems to me that for very similar reasons, a landlord is not entitled to assume 

that the cost of removing every partition or every aspect of tenant’s alterations will properly be 

chargeable to the tenant upon quitting. 

The authority cited in support of the proposition that costs of works of reinstatement can be 

awarded even where they exceed the diminution in value is Eyre v Rea [1947] 1 KB 567 where a 

tenant converted premises into five flats in breach of covenant. The landlord forfeited and claimed 

damages. The rental achievable as five flats was greater than the landlord could achieve as one unit. 

The landlord was entitled to the cost of the reconversion. The case is probably to be seen as a case 

on its own special facts. By effectively requiring the landlord to leave the premises as five flats would 

substantially interfere with the estate management of the building and the landlord’s ability to do 

what he thought best with his own premises. 

The case is a world away from the scenario under consideration here where the landlord always 

intends to let the premises “as is” but overspends upon the repair works in order to do so. The Court 

cannot and should not dictate what the landlord does with his premises but can impose a limit to 

the extent to which the tenant should reasonably pay for the works. 

Although section 18 may not operate to cap the costs to the diminution in value, the tenant is still 

entitled to argue that to the extent that works have been undertaken by the landlord which have 

had no impact whatsoever upon the rental values achievable, those costs have been unreasonably 

incurred and accordingly ought not to be awarded as damages under Ruxley. 



It is submitted that in the current market a landlord should be led primarily by valuation evidence as 

opposed to building surveyor evidence in making the decision as to what works should properly be 

undertaken in order to preserve the proper open market value rental from the premises. Excessive 

costs may leave the landlord with a shortfall. 

Indeed, it may even be the case that the landlord who upgrades the entire four floors in order to 

maximize the rental potential of the ground floor retail unit may well do himself a disservice in the 

market place – an incoming tenant may well see the level of finish imposed upon the premises by 

the landlord and be immediately put off by assuming that this excessive and unnecessary standard 

of repair is what the landlord will be looking for in 5 or 10 years’ time. 

STEPHEN J PRITCHETT 

Monday, 7 January 2013 www.chancerycounsel.co.uk 



the service 

the people 

the quality 

designed by the sea... coastlinecreative.co.uk

419-1587-Clerksroom-RRD-Stephen-Pritchett

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